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By Margé Karner - January 25, 2019
In my opinion, data tells a more complete, objective story as compared with market sentiment, which got pretty pessimistic in the final months of 2018. In fact, I believe there will be an acceleration in growth this year in several emerging market (EM) countries—leading me to be optimistic about investing opportunities in 2019.
That being said, I’m not suggesting to invest broadly in EM debt. The EM landscape is not only uneven, it can be downright jagged in some spots, which makes active management as important as ever. There clearly are economic issues around the globe; we only have to look at the still-broken trade relationship between the U.S. and China to remind us of that. But because of lower valuations despite stable fundamentals in some countries, the market could reward investors who choose wisely among EM debt.
Check out my latest quarterly update video to find out my thoughts on these topics and more.
We believe that the market sentiment is much worse than the data actually shows.
Global growth continues to be strong despite the moderation in 2018. What we can expect in 2019 is US growth to moderate from very high levels that we've seen in 2018. However, we expect in a number of emerging market countries growth to actually improve. Overall, we're still at a very high level in terms of economic activity.
Moving forward, in 2019, we actually see opportunities in local markets, where real interest rates are actually already very high, and many currencies have corrected to the levels, and they're very attractive.
Some risks carry over from last year, and there are some new areas to focus on, as well. We continue to believe that the trade tensions and potentially the negative impact on global growth and global demand is the biggest risk for 2019. However, our view is that there are no winners in the trade war, and we do believe that the US and China will find some solution through negotiation.
As some investors got scared by the increased volatility in the markets in 2018, we think that there is a good opportunity to enter emerging market debt, now that valuations are much more attractive, and in our view, fundamentals continue to be supportive.
Interestingly, despite of the increased volatility and some negative headlines from specific countries, investor flows into the emerging market asset class were positive in 2018, particularly from institutional investors who in some cases increased their allocations.
We always have to emphasize that emerging market debt is not one single asset class, and there are very large divergencies in terms of both economic fundamentals, as well as market performance between different countries, as well as different sub-asset classes, like, for example, currencies versus emerging market credit. In our view, emerging market debt has to be managed actively, particularly now, where we're having a new environment of increased volatility.
I think I've said this before, in my view, it's just back to normal. We are not worried excessively over the return of the volatility. We actually see it as an opportunity. Particularly now, with improved valuations, we continue to be very selective. We do not recommend taking exposure across the board emerging markets, but there are significant opportunities now available for investors.
Negative-yielding debt has been steadily increasing throughout the world, and many investors worry the U.S. won’t remain immune from this bond market anomaly. Co-CIO Charles Tan shares why negative rates could present significant risks.
An inverted yield curve may signal trouble in the water. Despite the bond market’s warning, we still believe the U.S. economy may remain resilient.
Sr. Portfolio Manager Rajesh Gandhi explains how his team finds ways to “connect the dots” to find growth businesses despite looming trade wars.
Emerging market debt was the subject of much scrutiny in the third quarter, but Sr. PM Margé Karner believes that too many investors were painting with a very wide brush. Hear her thoughts on current valuations and how to pick your spots for exposure in a Q4 2018 outlook video.
November 26, 2018
In this quarterly update, Portfolio Manager Margé Karner discusses the good and the bad of emerging markets debt heading into the new year.
January 25, 2019
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.