The next emerging-markets boom is here
Source: Daily Crux
http://thecrux.com/the-next-emerging-ma ... m-is-here/
More than a quarter of dollar-denominated corporate and quasi-sovereign debt in emerging markets is tied to oil and gas production, according to Bloomberg Intelligence.
That compares with 14.4 percent of the U.S. high-yield index and 12 percent of U.S. corporate bonds more broadly.
When the Fed raises rates next week, emerging-market credit can easily keep on rallying. It's really falling oil prices that would put a halt to this party.
“MSCI Emerging Market outperformed Develop Market during three of the last four hiking cycles”
EM valuations remain attractive versus developed markets, trading at a 30% discount, according to the strategist.
“EM are far from over-owned, even though they had net inflows over the past three quarters. They are still sitting on 50% relative underperformance since 2011,” Matejka said.
Among emerging markets, J.P. Morgan favors China and Brazil.
1. If the U.S. dollar remains strong and the Federal Reserve continues to raise interest rates
2. Global trade declines amid increased protectionist measures
3. China is stabilizing, but still risky
U.S. dollar credit to overseas nonbank borrowers has risen by more than 50 percent since 2009, to around $10 trillion.
As much as three-quarters of this debt is denominated in dollars, and emerging-market borrowers account for a significant portion of it.
Chinese companies alone owe more than $1.1 trillion to overseas creditors. The equivalent figure in Brazil and Mexico is close to $400 billion; in Russia, it's $700 billion.
Emerging market stocks are cheap, and emerging market currencies favor returns going forward.
The iShares MSCI Emerging Markets exchange-traded fund (EEM) up 25% over the past 12 months, and up nearly 16% just in 2017.
The iShares MSCI Emerging Markets Asia ETF (EEMA) is up 28% over the past year, and up nearly 20% this year.
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