Industry cheers new reform measures in EMs

Added 6th October 2015

Industry sources are cheering the set of new stimulus introduced last week by several emerging countries to address slowing growth. The Chinese government reduced the minimal down payment for first-time home buyers while India’s central bank unexpectedly reduced its repo rate from 7.25% to 6.75%.

Industry cheers new reform measures in EMs

Blackrock noted this week that the stimulus measures implemented by China and India coincided with some stabilisation in emerging market equities. Blackrock said that it is leaning towards emerging Asia, and it advised long-term investors who are able to withstand near-term volatility to take advantage of relatively cheap valuations.

Deutsche Asset & Wealth Management said last week that while general growth concerns in emerging economies call for risk re-pricing, it reckoned that industry players have gone ahead of themselves.

“[The market is] overpricing risks that we believe will not materialise to the extent feared. Within bonds, contagion has led to indiscriminate selling within entire sectors, which open up opportunities,” Deutsche AWM said.

The lender also pointed out that there are beneficiaries of low commodity prices with emerging economies, such as Thailand, Singapore and Vietnam – these are net oil-importing regions. It stated its preference for investment-grade sovereign bonds in the emerging economy asset class.

The International Monetary Fund (IMF) noted last week that while emerging economies are likely to see their fifth consecutive year of declining rates of growth, India remains a bright spot. The World Bank said this week that South Asia is expected to maintain its lead as the fastest-growing region in the world, with economic growth forecasted at 7.4% in 2016, up 0.4% from this year.

"Within bonds, contagion has led to indiscriminate selling within entire sectors, which open up opportunities."

The World Bank said that although South Asia’s resilience to external shocks has put the region in a position of strength, there still remains structural constraints holding back export and investment growth.

“To keep the momentum and accelerate job creation, [South Asian] governments should enact reforms easing infrastructure bottlenecks,” the World Bank said. 

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