As a global investment manager, we help institutions, intermediaries and individuals meet their goals, fulfil their ambitions, and prepare for the future.
EMD Relative weekly notes
We believe that one of the difficulties with employing simple arguments to posit that emerging markets have run too fast--or whether emerging markets have much more upside--is that we are in an era where historical comparisons largely lack relevance. With approximately $13 trillion in government debt trading at negative rates1, determining what “risk” is and what “rich” is have become exercises without comparative anchors. Nevertheless, the answers we read on Wall Street research still cling to the traditional concepts of comparisons between other periods of relative historical exuberance. We don't have a solid metric, but we suspect that historical comparisons will lead investors astray.
Without those valuation anchors and an ability to determine with confidence overall market valuation metrics, we think that following the historically reliable indicators that have been well correlated with investor returns remains our best investment path. Those indicators currently remain positive.
The key reason for that view is the stance of developed market central banks. The commitment to asset purchases remains intact at the Bank of Japan (BOJ), the European Central Bank (ECB), and the Bank of England. With so much debt subject to purchase by a price-insensitive buyer with an unlimited balance sheet, valuations seem to matter less than detecting whether those commitments are beginning to flag and if those central banks are returning to a more traditional policy framework. There is no sign of this development, primarily because those policies continue to show no convincing signs of producing results in the form of economic growth.
The exception of course is the Fed, which continues to jawbone markets when rate hike expectations sink too low and asset prices rise too high, too fast. The past week was a good example when one Fed governor stated that September was still possible for a rate hike, and at least one hike this year was suggested. Rate hike probabilities predictably rose, but the US dollar remained relatively unaffected. The chart below shows the last 10 trading days for the dollar, without a whole lot of volatility or a meaningful trend change to stronger levels.
We suspect that the market's sensitivity to such pronouncements is waning. The dollar remaining stable-to-weaker has historically been a very benign environment for emerging markets. Thus, we see little reason to guess that that environment will turn around in the absence of observable evidence.
This site is for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy any security which may be referenced herein. This site is solely intended for use by institutional investors and institutional-investment industry consultants.
Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser, CRD Number 105820, providing asset management products and services to clients in the US and registered as a Portfolio Manager with the securities regulatory authorities in Canada. Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and as an Exempt Market Dealer with the securities regulatory authorities in Canada. SFA markets certain investment vehicles for which other Schroders entities are investment advisers.
Schroders Capital is the private markets investment division of Schroders plc. Schroders Capital Management (US) Inc. (‘Schroders Capital US’) is registered as an investment adviser with the US Securities and Exchange Commission (SEC).It provides asset management products and services to clients in the United States and Canada.For more information, visit www.schroderscapital.com
SIMNA, SFA and Schroders Capital are wholly owned subsidiaries of Schroders plc.