Investors and analysts expressed all-round optimism about emerging markets at Emerging Market Traders' Association Winter Forum in London yesterday. Good fundamentals, diversified issuance strategies and flat yields in the US were the main reasons cited for the bullish outlook.
All five analysts in a panel of emerging market experts presented positive forecasts. Moderator Jonathan Bayliss, head of quantitative strategy at JP Morgan, noted that last year’s negative predictions had proved to be wildly off mark. The asset class’s surprisingly strong performance was due to structural changes, he added
Looking ahead, the speakers expect 2005 to be another very good year as the economic fundamentals of many developing countries continue to improve. “I expect to see a range of upgrades,” said Walter Molano, managing partner at BCP Securities. The panellists, in fact, noted that many sovereigns deserved higher credit ratings.
“Russia, Romania and Bulgaria should all be investment grade,” said Tim Ash, senior analyst at Bear Stearns. “There are some strange ratings out there.” Molano agreed: “[In Latin America] Brazil and Venezuela should be graded BB.”
The speakers also said that local markets offered good opportunities. Analysts noted that dedicated local funds were on the increase and that client interest in local markets had grown. Serbia, Romania, Turkey and the Ukraine were mentioned as potentially profitable trades, as well as Brazil and Chile.
The high liquidity in emerging markets was expected to continue. Some investors thought that money could move to US and EU high-yield assets in the medium-term, but such a development would not occur this year.