Wed, Nov 29, 2017 page10

• Emerging-market equities best bet next year: expert

  • Bloomberg
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  Emerging-market stocks should rally at least 10 percent next year and are a better investment than developing-nation bonds, NN Investment Partners said.

  Valentijn van Nieuwenhuijzen, chief investment officer at the Dutch asset manager, which oversees US$288 billion, said he has increased the share of emerging-market equities in his portfolios relative to debt.

  Emerging-market bonds are already fairly valued and next year’s returns would be between 2 and 4 percent, he said.

  Emerging-market investors have enjoyed strong returns this year with a 33 percent gain in the MSCI Emerging Market index and a near 8 percent total return in the Bloomberg Barclays Emerging Markets Hard Currency Aggregate bond index.

  Cash continues to flow into the securities with US-listed emerging-market ETF assets alone rising by US$1.07 billion this month and US$42.6 billion this year.

  “It starts for us with a fairly solid conviction on a good performance in emerging-market equities next year, then we translate that in portfolios into an overweight compared to [the] benchmark,” Van Nieuwenhuijzen said in an interview in London. “At this point, we are more aggressively positioned in emerging-market equities than we are in emerging-market debt.”

  Equities are less stretched from a valuation perspective, they are still relatively cheap and seem to benefit from credit growth, he said.

  The corporate sector is still managing to grow profits without getting into any type of bottlenecks and the firm thinks investors with a longer-term perspective are still fairly light in their allocations to emerging-markets, he added.

  The story is also very good on the debt side, but yields are fairly low already. Spreads over government bonds are at the lower end of historical ranges and if US yields rise, that would hurt total returns, he said.

  There is still get a nice yield pickup, and much of the fundamentals and sentiment remain supportive, so emerging-market bonds should outperform developed-market equivalents, he added.

  NN Investment is still overweight in emerging-market debt compared with developed-market sovereigns, which is the asset class it likes least among its allocations, he said.

  Van Nieuwenhuijzen said his firm likes markets where it gets a sense of structural reforms taking place, such as India, Argentina and Indonesia.

  Here, there is good growth, a feeling that governance is good and getting better, and some degree of social reform, he said.

  Tactically, the firm also likes Russia, not so much to do with structural reforms or governance, but because of the cheapness of the market and the recovery in crude oil prices.

  The firm does not like markets where the situation is less stable, such as in Turkey, South Africa and Malaysia.

  Political instability is the main concern, and there are no reforms and even a deterioration in the policy setup in those nations, he said.

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