Emerging Markets Struggle Amid Trade Woes as Commodities Slide

LAGOS (Capital Markets in Africa) – Emerging markets struggled to gain traction amid heightened trade-war rhetoric and a slide in commodities.

The largest stock ETF in developing nations started the month lower, and most currencies fell after China warned the U.S. against “blackmailing and pressuring” it over trade. Chile’s peso slumped with copper, while miner Vale led losses in raw-material peers. South Africa’s rand rose amid bets that the ruling party’s proposal to speed up land redistribution will reduce uncertainty, and Brazil’s real gained ahead of today’s monetary policy decision.

Investors took a more cautious approach on concern that an escalating trade war between the world’s two largest economies could lead to slower global growth. Traders also awaited the upcoming Federal Reserve’s decision as the yield on 10-year Treasuries climbed to 3 percent. The risks posed by a stronger dollar, protectionism, tighter liquidity in rich nations and political risks in various developing countries may weigh on emerging markets.

“ A continued stronger dollar, which we see likely over the next 3 to 6 months, will continue to put pressure on emerging markets,” said Mona Mahajan, a strategist at Allianz Global Investors U.S. She says emerging markets offer a good opportunity to long-term investors.

Meanwhile, Goldman Sachs Asset Management says emerging-market sovereign and corporate bonds offer some of the best buying opportunities in the fixed-income universe after this year’s selloff. Such view echoes those of fund managers including Investec Asset Management and Lazard Asset Management LLC that are betting cheap prices, solid economic fundamentals and rising corporate profits outweigh the risk of higher U.S. interest rates and an escalating trade war.

“The growth story there is still very positive,” Andrew Wilson, the London-based co-head of global fixed income at Goldman Sachs Asset, said in an interview with Bloomberg TV’s Rishaad Salamat and Kathleen Hays. Goldman is more skewed toward sovereign notes and is “cautious” on credit, he said.