According to the investment strategists at 1Wealth, emerging markets are all the rage in the investment world—which is not to say that all investors trust emerging markets. To hear some investors tell it, emerging markets represent the best and quickest way to develop life-long wealth. Others maintain that emerging markets are essentially sucker bets, dangerous to the point of being reckless. A recent Wall Street Journal article affirms the fact that many investors are selling off their emerging market investments, out of fear of short and long-term risks, while others continue to see the allure in emerging markets. 1Wealth has commented on the article with a new statement to the press.
Certainly, this is a company that knows much about emerging markets. The company, which seeks to assist stock investors in Australia and around the world, has worked with emerging market investments on many occasions. To hear 1Wealth tell it, though, these investments are not necessarily as great as they are made out to be.
“We disagree with much of the doomsaying, and with those who believe emerging markets to be destined for failure,” the company explains, in its statement to the press. “Certainly, emerging markets carry many risks, and there are innumerable unknown factors that throw the whole investment class into question. This is something that we would say about nearly all investments, though, and should not altogether discount emerging markets.”
With that said, the company notes that emerging markets are not necessarily the silver bullet that many investors hope for. “We have had many clients express an interest in emerging markets, and then quickly lose interest,” the company remarks. “Why is this? Simply put, emerging markets do not match the kind of revenues that our clients generate through using our stock market investment solutions!”
Meanwhile, the article from The Wall Street Journal makes note of the complicated attitudes that investors have toward emerging markets. “Some investors are betting a month of steep losses for emerging-market stocks, currencies and bonds will prove to be a temporary setback,” the article reports. “These assets have sold off amid fears the Federal Reserve is preparing to cut off the flow of easy money that has fueled a [years-long] rally in markets as diverse as Thai stocks and Brazilian bonds.”
The report continues by noting that investors have begun pulling money out of developing economies at the fastest rate in a couple of years, including $8.3 billion in outflows during the week that ended on June 12. More specifically, such currencies as the Brazilian real and the South African rand are hovering near their lowest rates in years, when compared to the dollar.
According to some fund managers, however, the slump is only a momentary setback—a speed bump, not a sign that the tides of these markets are turning. These managers are holding their positions in emerging markets, and in some cases even expanding them, hoping to see a quick rebound. Their gamble is that while the growth prospects of most emerging markets have dimmed, they may still outperform most developed economies. This, along with the promise of fruitful returns, will draw back more foreign capital, regardless of whether or not the Fed begins to draw down its stimulus measures.
The Journal article includes a quote from Alexander Kozhemiakin, portfolio manager of the Dreyfus Emerging Markets Debt Local Currency Fund; this fund encompasses more than $4 billion. Kozhemiakin is one investor who has hardly given up on emerging markets. “While definitely there are some headwinds faced by emerging markets, the reality is they’ll still grow at higher rates than the rest of the world,” he says.
Kozhemiakin bought the peso, as well as debt from the Mexican government, in early June, after Mexico’s currency had fallen by more than 7 percent in less than a month. The peso has since stabilized, while the bonds are beginning to rebound. Yields on the 10-year peso-denominated bond were at 5.49 percent at the time of the Wall Street Journal article.
Despite the passionate defense given by investors like Kozhemiakin, The Wall Street Journal notes that they are the exception to the rule. “In the week ended June 12, investors pulled $943 million from funds that mainly buy emerging-market bonds priced in local currencies, the second-biggest outflow ever, according to fund tracker EPFR Global,” reports the article. “Funds that buy emerging-market stocks saw outflows of $6.4 billion in the week through June 12.”
High-yielding assets, meanwhile, could swoon if the Federal Reserve makes clear its intentions to wind down its bond-buying program. Over the last few years, low interest rates and easy-monetary policies in the developed economies of the world sent investors searching for higher-yielding assets in emerging markets. The potential of the U.S. removing its stimulus has raised fears that investors might move money back to developed economies, where yields might prove higher than in the past.
“Investors who are sticking with emerging markets said it is mostly short-term traders behind the recent selling,” the article contends. “Of the most recent outflows from emerging-market stock funds, 70 [percent] came out of exchange-traded funds, vehicles widely used by individual investors, according to analysis of data from EPFR Global.”
“Again, we think that some of the uncertainty surrounding these emerging markets has been overblown, but that does not change our even more fundamental assertion that emerging markets do not necessarily offer the same kinds of returns investors can get from developed stock markets,” concludes 1Wealth.
1Wealth is a program designed to offer maximum accuracy and efficiency to corporate and individual stock investors, in Australia and around the world. The business began as a small stock trading firm, but it has blossomed into an international company, with its headquarters in Sydney but offices spread across countries all over the world. The mission of this firm is to provide investors with the technological tools and financial methodologies they need to generate consistent stock market revenues, and ultimately to generate wealth to last a lifetime.