Emerging markets set to rally as more than $7-trillion in stocks slide

New York — Emerging markets (EM) are poised to rally after more than $7-trillion in stocks slid into bear territory, according to three of the world’s largest money managers.

Strategists and investors from Goldman Sachs, Franklin Templeton Investments and BlackRock say cheap prices, rising corporate profits and strong fundamentals will outweigh risks from a tit-for-tat trade war, rising interest rates and potential US recession.

“We do like EM assets, particularly EM equities,” said Isabelle Mateos y Lago, chief multi-asset strategist at BlackRock Investment Institute, the asset manager’s think-tank. “It’s a combination of the global growth backdrop, earnings expectations for EM corporations and valuations.”

Yet bulls are in the minority. More than half of market participants expect the sell-off in developing-nation stocks and currencies to continue, according to a Bloomberg survey of 20 investors, traders and strategists. Pessimism towards developing-nation stocks is close to the highest level in 23 years, according to the Bank of America Merrill Lynch risk-love indicator.

Bank of America Merrill Lynch strategists, including Ritesh Samadhiya, said that’s “normally a sign to increase exposure, not reduce it”, as long as it doesn’t coincide with a recession. And recent headwinds, such as trade tensions and a stronger dollar, shouldn’t derail stocks much longer, according to Franklin Templeton.

Bloomberg