How Will the Divergence in Emerging Markets Assets Resolve Itself?

| Multi-Asset

How Will the Divergence in Emerging Markets Assets Resolve Itself?

Typically emerging market (EM) assets trade closely together as investors look at their EM exposure holistically as an asset class by itself, as opposed to differentiating strongly between credit, equity or currency risk. However, the decoupling of fixed income and equities, which we have noted in developed markets, can also be seen in EM assets. Our chart looks at the total yield on an index of EM government bonds and compares its recent history to the forward-looking (12 months) earnings yield of stocks in the MSCI EM index. This comparison reveals how the earnings yield has continued to decline as equities have continued their rally and is now low relative to its level over the last five years. Yet the bond yield has remained stable at the upper end of its range over this time period. How the situation resolves itself – a further leg down in bond yields or rise in earnings yield – will depend squarely on how the macro environment in EM economies evolves going forward.


20190416 COTD - Emerging Market Divergence - Website
Unigestion, based on Bloomberg data as at 16 April 2019.

Important Information

The information and data presented in this page may discuss general market activity or industry trends but is not intended to be relied upon as a forecast, research or investment advice. It is not a financial promotion and represents no offer, solicitation or recommendation of any kind, to invest in the strategies or in the investment vehicles it refers to. Some of the investment strategies described or alluded to herein may be construed as high risk and not readily realisable investments, which may experience substantial and sudden losses including total loss of investment.

The investment views, economic and market opinions or analysis expressed in this page present Unigestion’s judgement as at the date of publication without regard to the date on which you may access the information. There is no guarantee that these views and opinions expressed will be correct nor do they purport to be a complete description of the securities, markets and developments referred to in it. All information provided here is subject to change without notice. To the extent that this page contains statements about the future, such statements are forward-looking and subject to a number of risks and uncertainties, including, but not limited to, the impact of competitive products, market acceptance risks and other risks.

Data and graphical information herein are for information only and may have been derived from third party sources. Although we believe that the information obtained from public and third party sources to be reliable, we have not independently verified it and we therefore cannot guarantee its accuracy or completeness. As a result, no representation or warranty, expressed or implied, is or will be made by Unigestion in this respect and no responsibility or liability is or will be accepted. Unless otherwise stated, source is Unigestion.

Past performance is not a guide to future performance. All investments contain risks, including total loss for the investor.