Glimmers of Optimism Surface After Emerging-Market Selloff

LAGOS (Capital Markets in Africa) – For every rout, there’s a buyer — or a least that’s what it looks like now for some emerging-market money managers after a selloff erased most of this year’s gains.

BlackRock Inc., Goldman Sachs Asset Management International and Payden & Rygel Investment Counsel say they’re betting on a rebound now that valuations have left some assets a lot cheaper than January. The price-to-earnings ratio of the MSCI Emerging Markets index stands at 11.8, down from a high of 13.3. Hard-currency bond spreads, described by investors as too tight earlier this year, have widened by about 40 basis points.

“We really haven’t changed our view this year on emerging markets,” said Kristin Ceva, who helps oversee about $9 billion at Payden & Rygel Investment Counsel in Los Angeles. “This has become a pretty good buying opportunity.”

Ceva, who helps oversee an emerging-market debt fund that’s beaten 80 percent of peers during the past five years, is focusing on less-heralded frontier and emerging markets such as the Dominican Republic, Ghana and Georgia. In currencies, she favors South Africa, Colombia and Malaysia.

Richard Turnill, global chief investment strategist at BlackRock, is seeking opportunities in emerging-market stocks, favouring Asian companies with strong corporate earnings and relatively healthier balance sheets. He also sees value in Brazilian equities, but is more cautious on overall emerging market bonds, favouring dollar ones from countries with low financing needs.

Emerging-market assets slid this quarter as the dollar and U.S. Treasury yields churned relentlessly higher and local issues hit Argentina and Turkey. Yet many investors say they remain confident there’s little risk of contagion.

Dollar bonds are worth looking at now given that fundamentals for the asset class weren’t harmed by the selloff, according to Angus Bell, who manages emerging-market debt at Goldman Sachs Asset Management.

“The global economy remains intact and I think it would be wrong to extrapolate what is happening in some of the more problematic economies as being a reflection of the entire EM universe,” Bell said.