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Balance of risks

Weekly investor research

15 August 2016



The case for Emerging Markets (EM) rests not just on valuations, fundamentals and the positive outlook for EM currencies, but also, importantly, on current positioning. Light positioning in EM assets means that there are fewer sellers to respond to negative global risk events and more potential upside if institutional investors allocate when they come back from summer holidays. Hence, risks are on balance skewed favourably in EM even after this strong performance year to date. Turning to developments of relevance to investors in individual EM countries, the trial of President Dilma Rousseff has begun in Brazil, while Mongolia is showing signs of wanting to put things right. In China, the data disappoints, but without surprising a great deal. Egypt accepts help from the IMF, Eastern European countries grow strongly, Russia gets into another tiff with Ukraine and speculation mounts that Sukuks will soon be included in JP Morgan’s fixed income benchmark indices. The global backdrop section discusses the huge shifts in the FOMC’s projections for the steady state variables against which it defines policy. What do these shifts mean for you?

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