Emerging-market watchers say another sell-off approaches

The next selling frenzy in stocks will most probably break out by September, according to the majority of 61 investors, strategists and traders surveyed last month. Latin America is expected to be the worst-performing region for currencies, bonds and equities in the second half. While expecting another round of selling, most respondents still expect an eventual recovery, with a majority seeing assets ending the year higher than current levels.

Emerging-market investments have seen a significant bounce back from their initial coronavirus sell-off, with the MSCI Emerging Markets Index posting its biggest monthly gain in four years in April. Sentiment has been boosted by optimism about potential drugs being developed to fight the pathogen, global stimulus efforts and signs that global lockdowns are easing. While the outlook remains volatile, the majority of the respondents still see gains in all three asset classes by year-end.

In terms of geographic areas, Asian assets are seen as the most attractive for stocks, currencies and bonds, the survey found, with the region’s fixed-income securities regaining the top spot they lost in the previous survey. Latin America is expected to be the laggard in all three categories as it suffers the greatest fallout from the virus pandemic.

“Latin America is a big concern given how the region will enter winter and could see a further increase in infection cases,” said Tetsuya Yamaguchi, chief technical analyst at Fujitomi Co. in Tokyo. “The pandemic situation in Asian countries such as China and South Korea is starting to show some stabilisation, and the region has more room to deploy additional financial and fiscal stimulus.”

The coronavirus outbreak that has decimated global markets this year replaced U.S.-China trade tensions as the biggest expected driver for emerging markets in the second half of the year. The outlook for China’s economy was the only one of the top three key concerns that held its place from the December survey, while global fiscal stimulus efforts and their likely impact on developing economies ranked third.

When it comes to the comparison against the developed-market counterparts, survey respondents expect emerging currencies and stocks to underperform.

The total value of emerging-market assets was more than $28 trillion at the end of last year, according to data compiled by Bloomberg based on the combined value of equities from 26 nations listed by MSCI Inc. along with Bloomberg Barclays bond indexes of local-currency bonds, dollar debt and euro-denominated securities. At the end of April, more than $3 trillion had been wiped off that amount, led by a $2.8 trillion loss in stocks.

Respondents had a strong preference for lower-yielding assets from countries such as China, South Korea, Thailand and Poland. That’s a shift from the previous survey, where they had a clear preference for higher-yielding ones from nations such as Indonesia, Brazil and India.

Respondents were also asked about the outlook for inflation, monetary policy and economic growth across 12 emerging markets. Here are charts summarising their views:

Here is a list of the survey participants: