Emerging markets are attractively valued

Equity and debt markets have come under pressure in 2022 due to rising inflation, the Russian invasion of Ukraine and a slowdown in China. When investor confidence is at its lowest right now, US-based asset management firm Mackay Shields says emerging markets are ‘attractively valued overall’. The company recently published ‘After the Shock: Picking Winners and Losers in Emerging Markets’ in which it details the strategy investors can potentially rely on during these troubling times.

While emerging market debt has seen a sharp decline, Mackay Shields sees the asset class as a long-term investment. The report cites the JPMorgan Emerging Markets Bond Index returning 34.02% in the past decade. Mackay sees dollar bonds issued by emerging market sovereigns giving high yields.

While there is a sense of panic, some central banks in emerging markets have been quick to tighten the monetary policy to ward off inflation. While Asian currencies have underperformed, Mackay notes the increase in valuations of Latin American currencies.

The asset management firm sees oil, gas, and fertilizer products to be the winners and expects commodity exporters in the Middle East, Africa, and Latin America to benefit. However, energy and metal importers in Asia and Europe are likely to face headwinds.

“In short, we believe that rising commodity prices, early central bank rate hikes and strong commitments from the international community to secure alternative sources of key inputs for production can potentially create a fertile environment for investment returns going forward,” writes Mackay Shields.

View the full insight here.