Amundi sees flow from Europe to EM

Added 27th September 2016

The European market is actually more volatile than emerging markets, said the firm's deputy global head of equities, Alexandre Drabowicz.

Amundi sees flow from Europe to EM

The perception remains that emerging market equities are more volatile, yet when comparing the volatility of the MSCI Emerging Markets Index versus MSCI Europe over one- and three- year periods as of August 31, the latter actually has higher volatility, he said, citing Bloomberg data.

“It’s not to say emerging markets are safe havens. But the perception of investors is that emerging markets might be a more suitable place to invest than Europe.

“In EM, there are more specific risks, such as a military coup in Turkey, whereas in Europe, there are more macro risks,” he told FSA.

European equity funds have seen net outflows for the past 33 consecutive weeks, with nearly $90bn being pulled out this year, according to data from Bank of America Merrill Lynch.

“People have apparently forgotten about Brexit," Drabowicz said. "But it’s going to come back to the table for sure,” he said.

Other political risks include Spain, where a majority government still cannot be formed after two general elections this year; Italy’s referendum in December; as well as presidential elections in France and Germany next year.

These factors will translate to market spikes and increasing volatility from time to time, he said.

Still, some European stocks offer a dividend yield of about 4%, which is the highest in developed markets, he noted.

EM and earnings

In emerging markets, he looks for companies driven by growing domestic demand, rather than those supported by improving external trade data and commodity prices.

“In terms of the P/E ratio, the price [of EM equities] has been cheap. What we’re looking for is companies with earnings improvements."

Drabowicz expected average EM earnings growth to be in the high single digits next year. Hence, dividends are not a priority when looking at EM markets, he noted.

"We are not expecting double-digit growth, but what we will see is companies that are more stable, with solid balance sheets.”

Some firms, however, see opportunities in Asian dividend stocks.


MSCI EM index vs MSCI Europe over the last year:

 Source: FE

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