Emerging Markets Investors Hold Hope for 2016 Rebound

David Tamburelli, global head of Bloomberg’s products for companies and markets, speaks to investors at its annual Emerging Markets Bootcamp.

Investing in emerging markets seems rocky now, but the future holds promise, according to a poll of financial professionals attending Bloomberg’s Emerging Markets Bootcamp. The event, held annually, drew more than 180 analysts and investors to its headquarters in New York on Thursday.

When asked if 2016 will bring a rebound in emerging-market stocks or an unprecedented fourth year of losses, the audience was mostly optimistic. The majority or 46% said they are expecting a recovery in emerging markets in 2016 and another 15% expect a big rebound. The pessimists or 27% responded that there would be a slight loss, with only 12% expecting to see big losses in 2016.

“The challenges in Russia and Brazil create great opportunities for efficient players,” said Derrick Irwin, portfolio manager at Wells Fargo, who manages the $3.4b Wells Fargo Advantage Emerging Markets Equity Fund. “When Brazil recovers, its most efficient companies have the potential to outperform,” he said

Irwin emphasized that “China is what we have to watch,” adding that he is keeping an eye on actions by the Federal Market Open Committee and Saudi Arabia, where he said opportunities are likely to appear.

On Africa, Irwin said that the continent profited more than anyone else in terms of capital flows over the past couple of years. He said he likes insurance companies in Ghana as they’re not linked to the interest rate environment.

“We haven’t seen any reduction in appetite from institutional investors toward emerging market debt,” said Pablo Goldberg, a money manager at BlackRock. He added that the “search for yield” is very much alive.

A rate hike by the Fed might actually create an appetite for emerging markets, he said. The next hike won’t be too big, so rates won’t be much higher than now, which could bring investors to EMs. “The biggest losers in emerging markets are countries that are not adjusting,” Goldberg said, adding he likes Russia, but is cautious on Brazil and Ecuador.

“I have no problem buying Russia, as the risk of default is almost non-existent,” said Paul DeNoon, who invests in emerging-market debt at AllianceBernstein. DeNoon was one of four speakers on the panel, “Navigating the Next Wave: The Practitioner View”. While he is fine with Russia in the short term, but DeNoon won’t invest in the longer term, as Russia has issues including the rule of law, freedom and democracy. David Robbins, Group Managing Director at Trust Company of the West (TCW), said he expects that emerging currencies will stabilize soon. “Local currencies tend to stabilize before the Fed starts its tightening cycle,” he said.

By Gavin Serkin, Bloomberg Emerging Markets Editor-at-Large and author of “Frontier: Exploring the Top Ten Emerging Markets of Tomorrow” (frontierfunds.org), who moderated the panel.