Emerging market divergence set to continue - Fidelity

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 16, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Nick Price, portfolio manager at Fidelity Emerging Markets Fund, provides his outlook for emerging markets in 2016.

    Key Quotes

    “Developed world monetary policy casts shadow over EM assets, but concerns mostly priced in

    · Currency weakness a tailwind for EM exporters
    · India shows the importance of reform
    · China continues its shift towards consumption

    The emerging world in 2016 looks set to continue exhibiting the economic divergences of recent years, with those countries prepared to reform their economies looking best placed to achieve success.

    All eyes still on the Fed

    Developed world monetary policy continues to cast a shadow over emerging market (EM) assets. However, these concerns are now mostly priced in. There is a belief amongst some that a Fed rate rise would be a positive for emerging markets as some of the uncertainty will be removed from the market.

    Currency weakness a tailwind for EM exporters

    2015 has already exhibited a high degree of currency depreciation of most EM currencies versus the US dollar – along with most other developed market currencies such as the Yen and the Euro, which have also weakened significantly on the back of quantitative easing
    To this end, weaker EM currencies actually provide a tailwind for EM exporters. They make products and services derived from emerging economies more cost competitive, making them more attractive in the face of hopefully improving demand as the global economy continues to recover.

    Whilst a subdued oil price would not be helpful for oil-producing economies suffering from elevated current account deficits such as Colombia and certain Middle Eastern states, it may well help to stimulate global activity more broadly, and this could be beneficial to EM manufacturers and exporters.

    India shows the importance of reform

    Falls in commodity prices have not been bad for everyone. Take India, for example. As a net commodity importer, both the economy and the household have benefited from the impact of lower price inflation as the prices of fuel and food have fallen. As we said this time last year, appetite to reform the weaker developing economies is going to be important in determining their future destinies.

    China continues its shift towards consumption

    China continues to deliver on its gradual transition from being an economy driven by one-off capital spending to one built on more sustainable domestic consumption and higher value manufacturing. This may well weigh on the absolute level of economic growth delivered by the Chinese economy, but it is better to see a lower rate of sustainable growth than an elevated, stimulus-fuelled growth rate reliant on a continued increase in leverage.”
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