Emerging Markets: The Place To Be - Edmond de Rothschild AM

By Edmond de Rothschild Asset Management

Developed-market monetary policies will remain very accommodative for several months. The Fed has already warned that no rate hikes are expected in the near future and that the asset purchase programs would continue.

As such, the greenback is set to remain stable, if not depreciate along with the expected avalanche of stimulus to come – a real support for emerging countries with heavy debt burdens in dollars.

Adding to the Positive Trend

If the dollar depreciates, GDP rises and dollar-debt falls, improving the solvency of emerging debt. Stimulus measures, like the 1.9 trillion Dollar Covid relief package, will boost liquidity and demand, adding to the positive trend on commodities to benefit commodity-producing countries and notably emerging ones.

Low rates, ample liquidity and the stability of the dollar are also positive for the emerging equity markets. Attractive financing conditions have already fuelled a record number of IPOs, in particular in China and Brazil, and we expect this to continue as companies look to increase their spending.

Opportunities for Yield Hunters

The yield on the U.S. *10Y* Treasury is roughly 1.7 percent, whereas emerging countries offer 5.5 percent on average¹. So the extra 350+ basis points is not going ignored by yield hunters. Meanwhile, vaccine roll-outs will lead to the gradual re-opening of economies and will be a powerful support for sovereign debt markets.

Credit fundamentals of emerging corporates remain solid with better debt ratios, default rates, revenues and cash levels than developed markets. Allocations to the segment are still under-represented in asset allocations and we expect flows into the segment to increase as new opportunities arise.

Upwards Revision of Company Earnings

Interest in high yield – and notably emerging – bonds is rising. But high yield bonds are volatile. Position exposure should be monitored closely if some investors panic sell amid market turmoil. Attention to duration risk will also be valuable if a reflation trade begins too rapidly and U.S. rates rise too sharply.

On equity markets, we expect an upwards revision of company earnings. Some countries could come out stronger and become real growth drivers. China will continue to benefit, in our view, from the acceleration in digitization and favorable trade agreements with Asia and Europe.

Not Yet Been Priced

Flows into Chinese equities will likely increase as the market reopens and have upside potential, in our opinion, given their resilient strategic industries and demographics boost.

Brazil, where digitization is also advancing, looks set to adopt structural reforms in H1 that have not yet been priced in by the market, while India is one of the winners coming out of the crisis with a successful vaccination process.

Recognized Expertise in Emerging Markets

But the pandemic is not over just yet! Everything that could delay the vaccinations and the normalization of the economy (even from emerging countries) must be closely monitored.

The Edmond de Rothschild Group has developed recognized expertise in emerging markets for over 20 years and now manages more than 2 billion Euro in both equities and debt.

EdR Fund Emerging Sovereign relies on an active, flexible and opportunistic investment approach, concentrated with ~25 selected countries and able to go into off-benchmarked names.

EdR Fund Emerging Credit expresses its conviction approach by mainly investing in corporate debt. Selected for their best risk/return profile among rating brackets and prospects for improving their long-term credit ratios, they operate in identified growth sectors that stand out in a zone or country.

EdR Fund Strategic Emerging employs a fundamental stock-picking approach to search for sustainable business models, based on leading competitive positions and financial solidity with an overlay of geopolitical analysis.

EdR India uses an in-depth bottom-up fundamental research and ESG analysis with a focus on Corporate Governance to gain exposure to India’s secular growth drivers.

EdR Fund China invests in resilient business models, built on leading competitive positions by analyzing top-down/secular growth themes and fundamental bottom-up factors.

¹Source: Bloomberg Edmond de Rothschild Asset Management, Data as at 20.03.2021

For more information on our Emerging-Market convictions, please click here.

DISCLAIMER, March 2021.
This marketing material has been issued by Edmond de Rothschild (Suisse) S.A.(hereinafter «Edmond de Rothschild») located at 18 rue de Hesse, 1204 Geneva, Switzerland, a Swiss bank authorized and regulated by the Swiss Financial Market Supervisory Authority (FINMA). It is not intended for persons who are citizens of, domiciled or resident in, or entities registered in a country or jurisdiction in which its distribution, publication, provision or use would infringe existing laws or regulations. This material has no contractual value and is provided to you for information purpose only and should not be construed as personalized investment advice or a recommendation or solicitation or offer to buy, sell or hold any security or financial instruments or to adopt any investment strategy. Some instruments and services, including custody, may be subject to legal restrictions or may not be available worldwide on an unrestricted basis.
This material is based on information obtained from sources or third party materials considered reliable. Edmond de Rothschild uses its best effort to ensure the timeliness, accuracy, and comprehensiveness of the information contained in this document. Nevertheless, all information and opinions expressed herein are subject to change without notice. No guarantee is provided as to the exhaustiveness or accuracy of this material.
The information contained within this material has not been reviewed in the light of an individual’s specific circumstances, objectives or needs. Furthermore, tax treatment depends on the individual circumstances of each person and may be subject to change in the future. Therefore, a prospective investor is not released from the need to exercise his/her own judgment with regard to his/her specific investment objectives or to seek financial, legal or tax advice from professional advisers as appropriate. This document does neither constitute legal nor tax advice.
Every investment entails risks, particularly the risk of fluctuating prices and returns. Past performance and volatility are no indication of future performance or volatility and are not constant over time. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. The investor may not receive back the full amount invested. When an investment is denominated in a currency other than the reporting currency, changes in exchange rates may have an adverse effect on the value of that investment. The liquidity of an investment is subject to supply and demand. Some products may not have a well-established secondary market or in extreme conditions may be difficult to value, resulting in price volatility and making it difficult to obtain a price to dispose of the asset. Furthermore, the instruments or investment strategies mentioned in this material may carry risks other risks.
No entity part of the Edmond de Rothschild Group, neither its directors, officers nor employees, can be held liable for direct or indirect harm, losses, costs, claims, compensation or any other expenses that may result from the use or distribution of this material or from any decision to invest, divest or take no action on the basis of this material.
Reproducing or distributing this material in whole or in part to any third party without the prior written consent of Edmond de Rothschild is prohibited.
The «Edmond de Rothschild Fund» funds mentioned in this material are sub-funds of the Edmond de Rothschild Fund SICAV, which are organized under the laws of Luxembourg, and have been approved to be offered in Switzerland by the Swiss Financial Market Supervisory Authority («FINMA»).
The «Edmond de Rothschild» funds mentioned in this material are organized under the laws of France and have been approved to be offered in Switzerland to non-qualified investors by the Swiss Financial Market Supervisory Authority (« FINMA »).
The Prospectus, the annual and semi-annual reports, KIDs, articles of association can be obtained, free of charge upon request, from the Representative or from the following website: http://funds.edram.com.
REPRESENTATIVE AND PAYING AGENT IN SWITZERLAND: Edmond de Rothschild (Suisse) S.A.; rue de Hesse 18; 1204 Geneva