IT is usual that markets and assets that have suffered large relative price reductions will reach the bottom at some point and commonly recover sharply.
At this time many Emerging Markets have suffered from falling share and bond values while their currencies have been dumped based on the possible implications of a rise in US interest rates. But when do poorly performing assets become investment opportunities?
Currently, much of the economic news coming from Emerging Economies remains negative and few global investment managers are overweight in Emerging Markets. But how quickly might these countries recover on the back of their less expensive exports and lower oil prices leading to a return to positive sentiment?
In support of considering buying near the bottom, Morgan Stanley have recently issued a ‘full house’ buy alert for international stock markets for the first time since 2009.
This means their five market timing tools, valuation, fundamentals, risk, capitulation, and a combined market indicator are all indicating it’s time to buy. While Morgan Stanley remain cautious on Emerging Markets there is an acceptance that the time to buy may be close.
Certainly investing when your instincts tell you to keep your money safe is not easy, but investing should not be an emotional response it should be about assessing what you need to achieve and how best to position your funds to meet your objectives dispassionately.
Two examples of where income can be found with additional capital upside are the iShares Emerging Market Local Government Bond Fund and Emerging Market Dividend Fund. These Exchange Traded Funds invest in Emerging Market debt and Equities but have lost value sharply in US$ terms.
On the plus side the 12 month distribution yields are now 6.86 per cent and 6.69 per cent respectively, using 14/9/15 prices. While we will certainly see further Emerging Market volatility in the short term the tide will turn and some investors will be attracted by high yields and the potential for enhanced returns if Emerging Markets and currencies recover.
Please note this is a brief exploration of one market area we consider when providing investment advice.
The Fry Group are wholly independent and client portfolios are constructed from a broad universe of asset types and investments. Emerging market assets will not be suitable for all investors and my comments should not be viewed as a recommendation of the funds highlighted.
For further information contact Mark Davies: [email protected] Tel – 952 768 450
The Fry Group of companies comprises Wilfred T. Fry Ltd – Taxation Consultants, Wilfred T. Fry (Executor and Trustee) Ltd, The Fry Group (H.K.) Ltd, The Fry Group (Belgium) SA, and Wilfred T. Fry (Personal Financial Planning) Ltd. The last company is authorised and regulated in the UK by the Financial Conduct Authority is also passported under EU regulations and is authorised to act as a financial adviser by the Monetary Authority of Singapore-licence number FA095023. The Fry Group (H.K.) Ltd is authorised to conduct investment business by the Securities & Futures Commission (SFC) in Hong Kong and are members of the Hong Kong Confederation of Insurance Brokers. The Fry Group (Belgium) SA is regulated in Belgium by the FSMA (Reg. No. 23345 A-B) and is also passported under IMD EU regulations.