BlackRock Sees Emerging Stocks Almost Recouping Last Year's Loss
The risks from a U.S.-China trade war have also now subsided, says Blackrock’s Fraser.
(Bloomberg) -- Gordon Fraser of BlackRock Inc., who made the call to load up on Brazilian companies just before an election-spurred rally late last year, predicts emerging-market equities will recover most of their 2018 losses this year.
In the face of slowing global growth, the Federal Reserve is unlikely to raise rates this year, causing the dollar to weaken and improving the flows into emerging markets, said Fraser, global emerging-market equities fund manager. He is betting on companies gaining from a weak U.S. currency and those tied to China advancing on prospects of an improvement in the economy.
“Markets should recoup most, if not all, of their losses from last year,” Fraser, who is based in Hong Kong and helped manage the firm’s approximately $40 billion of active EM equities as of the end of 2018, said in a phone interview. “All the key challenges emerging markets had last year have been surmounted and the global liquidity has returned to emerging markets’ favor.”
Signs of improving liquidity include falling rate differentials between the U.S. and other markets, rate cuts and talk of similar actions at other central banks, and China’s various measures to support its economy, he said. The risks from a U.S.-China trade war have also now subsided, he added.
Read more of BlackRock’s views on emerging markets, here.
Fraser, who says they want to buy when there’s a crisis, saw his portfolio gain as Brazil equities surged following the victory of Jair Bolsonaro in the October presidential election after buying them in June and July. He subsequently took profits from the Brazil market’s rally. He also went underweight stocks in Turkey months before the blow-up in the Turkish lira in 2018.
Fraser’s main fund had an annualized total return of 18 percent in the past three years through January, compared to 15 percent in the emerging-market gauge, according to the firm.
Since the middle of last year, Fraser made three big shifts in his funds -- more bets on countries gaining from a weak dollar and stocks that will benefit from China’s economic recovery, and favoring growth over value.
Weak-Dollar Theme
Emerging-market equities are "highly correlated" with currencies and bonds so domestic players will benefit from a weaker dollar, Fraser said. He has bought financial stocks in Indonesia, Mexico and Argentina to benefit from this theme, he said. The Argentine peso and the Turkish lira were the worst-performing among developing-nation currencies last year.
“When a currency weakens or bond yields increase, typically equities go down,” Fraser said “So if we’ve become positive on a currency, firstly a perfect way to express it is through an equity. The key things riding the dollar last year are now out.”
Fraser has also turned overweight on Chinese stocks from being "materially underweight" in early part of last year, citing a potential pickup in economic activity on back of multiple support measures by its government and central bank. He has added stocks tied to Chinese consumer and technology in his funds.
Among other allocations, his funds reduced holdings in energy and materials companies and he has increased exposure to technology, consumer discretionary and health-care equities.
To contact the reporters on this story: Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net;Lilian Karunungan in Singapore at lkarunungan@bloomberg.net
To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Joanna Ossinger, Tomoko Yamazaki
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