Emerging market fund managers sometimes fail to raise money because clients are put off by short-term situations, such as the current trade war. The fund managers wonder if investors appreciate a fundamental shift has occurred in these economies over the past decade.
From running large current account deficits, these countries have become net creditors, meaning contagion from Federal Reserve policy is more limited. Compare disruptions following the 2013 ‘taper tantrum’ with a similar scenario in 2018 that hit Argentina and Turkey. Fallout for other emerging markets was said to be much less damaging.
Many emerging markets are getting their balance sheets in order and improving fiscal deficits, so portfolio managers are frustrated that investors pay more attention to headwinds than tailwinds.
Emerging markets have been in the “best possible condition”, says one manager. The general market has missed a lot of changes during the past decade and once EMs rotate around into investor favour again, people will realise corporate governance or macro factors have improved.
The trouble for investors is that when emerging markets start to work, they work really quickly.
Nick Fitzpatrick, Group Editor of Funds Europe
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