Duncan Mavin is a former Bloomberg Gadfly columnist.

Shares in banks and asset managers that focus on emerging markets are springing back from their sharp decline a month ago. But it's still way too early to declare a return to full health.

Spring Emerging
Shares of Aberdeen, StanChart and Santander have pared this year's losses
Source: Bloomberg data

The first few weeks of 2016 saw stocks of companies like Aberdeen Asset Management, Banco Santander and Standard Chartered accelerate steep falls that started last year. All three lean on emerging markets for a significant chunk of their business -- Standard Chartered generates about three-quarters of its operating income in emerging markets in Asia, Africa and the Middle East. At Santander, about 41 percent of revenue comes from Latin America, while the majority of Aberdeen's funds invest outside developed markets.

The principal worry was that a stronger U.S. dollar combined with a slowing Chinese economy and weakening yuan would weigh on emerging market borrowers, hurting their capacity to repay loans and dragging down the lenders' share prices, for instance.

Aberdeen, Santander and Standard Chartered each fell by more than a quarter by mid-February. Since then, though, the shares have staged a comeback. Aberdeen and Santander are back more or less where they started the year -- outperforming the broad Stoxx Europe 600 financials index for 2016 to date -- while Standard Chartered has halved its year-to-date losses.

Outperforming Benchmark
Aberdeen and StanChart have outperformed their benchmark this year
Source: Bloomberg data

The explanation is fairly straightforward. Investors have grown more cautious on the case for U.S. dollar strength, while the deepest fears about China's economy have abated. The MSCI Emerging Markets equity index is now up about 1 percent for the year -- having been down by about 14 percent in January.

Above Water
Emerging markets shares have erased their losses from earlier this year
Source: Bloomberg data

Investors should be asking how long this rally in emerging markets-focused financial stocks can last.

Equity, currency and bond markets certainly seem more benign than they did in the opening weeks of the year. But the broad trends that sent down shares in emerging-market exposed banks and asset managers remain. China's economy is still slowing. Its appetite for commodities produced in other developing countries is still muted. Beijing's efforts to shift the economy from one that is led by investment to one led by consumption is still difficult. The U.S. continues to outpace other economies. A further Fed rate hike this year -- and a stronger dollar -- remains on the cards.

Dwindling Estimates
Analysts have slashed their earnings forecasts for Standard Chartered
Source: Bloomberg
Graph shows Bloomberg consensus estimate for 2016 pretax profit

Meanwhile, earnings estimates for emerging-market-focused financial companies are in decline. Analysts have cut their forecasts for Standard Chartered's profit for 2016 by 43 percent since this start of this year, according to Bloomberg data. At Aberdeen, the drop is 11 percent and at Santander it's 9 percent.

For all the recent gains in emerging markets, the medium-term outlook for financial firms that focus on them remains frosty.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Duncan Mavin in London at

To contact the editor responsible for this story:
Edward Evans at