Matthew PeronChief Investment Officer, Senior Managing Director | 2018

Emerging Market Equity Positioning

When identifying attractive global regions in which to invest, it is just as critical to determine which regions to avoid.

ALL EMERGING MARKETS ARE NOT CREATED EQUAL

When identifying attractive global regions in which to invest, it is just as critical to determine which regions to avoid. Despite the growth of EM investing, many investors still carry some assumptions about EM assets that no longer hold true, one being that EM risk is singular and static. Recent struggles in Turkey and Argentina may have recalled painful memories from crises in the ’80s and ’90s, but over the last decade most EM Asian economies have dramatically improved their macroeconomic stability, possess fewer imbalances, and are less crisis-prone.

It is notable that EM Asian economies have had relatively few casualties since 2008, with sovereign defaults or currency crises limited to very specific cases. This speaks to the long-term resilience of these economies. Following the currency crises of the 1990s, EM Asian governments and central banks took steps to become more economically secure and build greater buffers. In general, these economies have an abundance of foreign exchange reserves, and relatively balanced fiscal positions and are able to employ sustainable fiscal packages as countercyclical tools.

Greater fiscal responsibility has resulted in lower public debt-to-GDP ratios relative to DM and other EM countries, and the transition from fixed to floating currencies in most countries over the past two decades has helped during periods of stress. Currency movements have been able to absorb the effect of a challenging global environment—a more favorable outcome than the immediate devaluations often seen with fixed currency arrangements that can lead to greater market shocks. Meanwhile, growth in domestic “onshore” funded assets, which can dampen volatility, has been helped by increased maturity, transparency, and breadth of local capital markets. Contractual savings institutions (e.g. national provident funds, life insurance companies, private pension funds, and funded social pension insurance systems) have created domestic demand for assets, smoothing currency fluctuations known to occur with more volatile cross-border flows.


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Sources and Disclosures

Sources for 4P Data

BCA Research

Bloomberg

Bureau of Labor and Statistics

CEIC Data

CIA World Factbook

Cornell University

FactSet

Global Innovation Index

Goldman Sachs

Heritage Foundation

Insead

International Monetary Fund

Ned Davis Research

OECD

SC Johnson College of Business

St. Louis Federal Reserve

tradingeconomics.com

WIPO

World Bank



Important Disclosures

City National Bank provides investment management services through its wholly owned subsidiary City National Rochdale, LLC, a registered investment advisor.

The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein.

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and, although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.

As with any investment strategy, there is no guarantee that investment objectives will be met, and investors may lose money. Returns include the reinvestment of interest and dividends. Investing involves risk, including the loss of principal. Diversification may not protect against market loss or risk.

Past performance is no guarantee of future performance.

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