Investors pulled a record-breaking $83.3bn out of emerging-market stocks and bonds in March, says Dion Rabouin for Axios. That tops similar outflows seen during the global financial crisis or the 2014 “taper tantrum”. There are growing fears that mass bond defaults in the world’s emerging economies are only a matter of weeks away.
The MSCI Emerging Markets index lost almost 24% in the first quarter. Emerging market equities now trade on a 65% discount to US equities, the largest ever, says William Watts for MarketWatch.
That will draw the attention of bargain hunters, but the steep discount is warranted. In addition to fears about sovereign bond distress, many emerging economies will be hit hard by slumping commodity prices. Alarmingly “underdeveloped healthcare systems” are another concern.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Look east
Yet emerging Asian markets look poised to ride out the turbulence better than peers in Latin America and elsewhere. The MSCI Emerging Markets Asia index fell 18% in the first quarter in dollar terms, outperforming the 21.4% fall across all global markets. Mainland Chinese shares comprise about half of the MSCI Emerging Asia index, with the other half made up of shares in Taiwan, India, Thailand and other countries.
South Korea, despite its high incomes, is also still classified as part of Emerging Asia and makes up 15% of the index. The country’s world-leading virus containment strategy has been widely praised, says Suhyoon Lee for Quartz. A programme of “stringent testing, contact tracing and isolation” has kept case numbers down without the need for the sort of strict lockdown measures imposed elsewhere. The country is even going ahead with elections next week.
Asia will not escape the global downturn of course. Although many governments in the region have brought in effective containment measures, a “second wave” economic effect is incoming as lockdowns elsewhere cause global demand to dry up, says Deutsche Bank. That is bad news for the region’s export-dependent economies. Some places look ill-prepared. The Indian economy “essentially won’t grow at all this year” and the economic cost in Malaysia and the Philippines could prove “exceptionally large”.
As in other regions, the pandemic will take a big chunk out of local earnings per share, says Mike Kerley of Henderson Far East Income Fund. Nonetheless, investors should note that businesses in many Asian countries have high levels of cash on their balance sheets and lower payout ratios than peers in the West. That leaves them better positioned to continue making payouts. “Asia will stand out as a relative beacon of stability for the income investor”.
-
Coventry Building Society bids £780m for Co-operative Bank - what could it mean for customers?Coventry Building Society has put in an offer of £780 million to buy Co-operative Bank. When will the potential deal happen and what could it mean for customers?
-
Review: Three magnificent Beachcomber resorts in MauritiusMoneyWeek Travel Ruth Emery explores the Indian Ocean island from Beachcomber resorts Shandrani, Trou aux Biches and Paradis
-
Halifax: House price slump continues as prices slide for the sixth consecutive monthUK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
-
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
-
Pension savers turn to gold investmentsInvestors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
-
Where to find the best returns from student accommodationStudent accommodation can be a lucrative investment if you know where to look.
-
Best investing appsWe round up the best investing apps. Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go?
-
The world’s best bargain stocksSearching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
-
Revealed: the cheapest cities to own a home in BritainNew research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
-
UK recession: How to protect your portfolioAs the UK recession is confirmed, we look at ways to protect your wealth.
