Investors flee emerging markets

View of Taipei © DANIEL SHIH/AFP via Getty Images

Taiwan remains a bright spot

(Image credit: © DANIEL SHIH/AFP via Getty Images)

published 24 September 2020

Investors are souring on emerging markets. The asset class saw net outflows of about $30bn last month, says Edward Glossop of Capital Economics – the biggest outflow since the turmoil of March. Their caution is understandable, says Yen Nee Lee on CNBC. From Brazil to India, emerging markets are host to some of the world’s worst coronavirus outbreaks.

Yet some markets remain in favour. Take China, South Korea and Taiwan, where exporters are cashing in on the “upswing in the tech cycle” and the virus remains under control, says Ben Powell of asset manager BlackRock. Investors’ growing pickiness is especially evident in debt markets, says Jonathan Wheatley in the Financial Times. Chinese government bonds attracted $89bn through the end of August; a ten-year bond at 3% per year evidently looks like a great deal to buyers. By contrast, the 7.3% yield on offer in Brazil has far fewer takers, with $9bn being pulled from Brazilian government bond markets this year.

Value hunters will find a “panoply of bargains” in emerging markets, with stocks trading at “less than half the average price-to-book ratio” of US peers and offering generous yields, says Craig Mellow in Barron’s. Yet the coming months are likely to be rocky. For those with the stomach to bet on a “catch-up run”, Brazil looks “the best candidate”. The market has plunged this year but solid fiscal support and tax reforms could yet spark a rally.