Investors are edging back into emerging markets, even though worries about the coronavirus’s impact on global economic growth have clouded prospects for the boom-and-bust asset class.
Nearly US$730-million flowed back into emerging markets exchange-traded funds (ETFs) in the past week, according to Lipper, after two straight weeks of outflows that accompanied sharp declines in the stocks and currencies of developing countries.
The MSCI Emerging Markets Index, which measures stock performance, has rebounded 4% from its early February low, though it remained down on the year. Another index measuring emerging markets currency performance was still sharply lower, reflecting the slide in a range of currencies from Asia to Latin America.
As of Friday, the coronavirus has infected 63,581 people and killed 1,380. Still, investors have grown more hopeful that economic damage will be limited. Before the outbreak, emerging markets stocks had steadily climbed since early December as analysts forecast a re-acceleration of global economic growth and the United States and China agreed upon a Phase 1 trade deal. Chinese equities make up roughly a third of the weighting in the MSCI Emerging Markets Index.
Emerging markets ETFs have seen a steady stream of money pouring in since late October and have not seen outflows on a monthly basis, Lipper data showed.
“The valuations are really compelling, and we were seeing signs of an economic recovery,” said Robert Phipps, director at Per Stirling Capital Management. “Once the coronavirus is put on pause, I think that will become the primary trend again.”
Mr. Phipps, who did not hold emerging markets stocks, has added them so that they now make up about 6 per cent of his portfolio. A weaker dollar would likely compel him to boost that position, he said. Countries that have borrowed in dollars would then find it easier to service their debt.
Other financial institutions, including BlackRock, JPMorgan and UBS Global Wealth Management, are also sanguine on the prospects for emerging markets in 2020, even though the asset class has underperformed U.S. stocks for more than a decade.
Emerging markets stocks have been more resilient of late in large part because they have languished for so long, said Michael Purves, chief executive of Tallbacken Capital Advisors.
“There’s not really a case to sell them, because they’re already massively underowned,” he said.
The economic impact of the coronavirus outbreak remains unknown. Some analysts have estimated that China’s yearly gross domestic product growth could fall to between 4 per cent and 5 per cent, down from the 6-per-cent annual growth the Chinese government previously estimated.
But some investors expect the shortfall in growth to be largely contained to the first quarter, which would give China’s economy room to catch up later this year.
“It’s a relatively short-term factor,” said Jim Besaw, chief investment officer at GenTrust. “We probably won’t be talking about it in April and May.”
-- Reuters
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
First National Financial Corp. For the past two quarters, the company has reported better-than-expected quarterly earnings results that sent the share price to a record high on Nov. 25. However, since then the share price has dropped 14 per cent and is in correction territory. The company has a relatively defensive business model with stable recurring revenue and offers investors an attractive monthly dividend with a current annualized yield of over 5 per cent. Jennifer Dowty says there could be a buying opportunity coming up soon.
The Rundown
Isaac Newton, the speculator who bet nearly everything on one stock
Isaac Newton (1642–1727) was one of the greatest scientists of all time. Less well known were his speculations on the London Stock Exchange. How did the brilliant Newton fare? Well, let’s just say he wasn’t one of the greatest investors of all time. Larry MacDonald tells us more.
Bargain hunting even as markets hit record highs? These global giants with juicy dividends could be just the ticket
Bargain-hunting investors may want to take a fresh look at the world’s big miners of base metals. As the panic over the spread of the coronavirus outbreak shows tentative signs of easing, producers of iron ore and similar bulk commodities appear to be attractively priced for gains, says Ian McGugan.
Robo-advisers beat these human advisers – sorry, salespeople – any day
Robo-advisers are struggling to find customers and one explanation is that people prefer the human touch when getting financial help. But who are these humans we turn to for advice in understanding the complexities of investing, retirement and other matters? A new study from the industry consulting firm Dalbar Inc. shows that a lot of them are just salespeople, who want to sell mutual funds and guaranteed investment certificates. Rob Carrick tells us more.
Others (for subscribers)
Thursday’s analyst upgrades and downgrades
Friday’s analyst upgrades and downgrades
The week’s most oversold and overbought stocks on the TSX
Friday’s Insider Report: Chairman invests $1.2-million in this stock yielding nearly 5%
Number Cruncher: Nine exchange-traded funds that may offer high yields and good prospects
Number Cruncher: Eight travel and leisure stocks to warm up to
Others (for everyone)
Iran’s economy is bleak. Its stock market is soaring
Opinion: Don’t let the coronavirus scare have you turning bearish on equities
In sickness and in health: World market themes for the week ahead
Some U.S.-listed China firms see shorting spike, others see short-covering jump
Globe Advisor
How rosy equities mask a wave of investor nerves
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.
Ask Globe Investor
Question: My wife and I are 73 and have investments in TFSAs and RRIFs. I keep getting notes from the CRA that I have RRSP room hanging on from my working days. I’ve searched my Gordon Pape reference books trying to find if I have any use for this (RRSPs should be collapsed at age 71). It doesn’t seem like I can use this but thought that I would ask.
Answer: Yes, this is possible. You may have carry-forward room you did not use before converting to a RRIF. Also, you can generate new contribution room after age 71 if you have earned income. The question is, what to do with it? If you had a spouse under 71 years of age, you could contribute to a spousal plan and claim a deduction. In your case, however, that is not an option since you are both 73.
--Gordon Pape
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What’s up in the days ahead
Is it time for Canadian investors to give up on the oil patch? We’ll have some answers to that question this weekend.
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
Click here share your view of our newsletter and give us your suggestions.
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff