Emerging markets are set to benefit from the United Kingdom’s exit from the European Union as European investors seek to diversify their portfolios amid the political uncertainty from Brexit, according to the asset manager Amundi.
“If you want to defend your portfolio it makes sense to consider emerging markets, where growth is still there and you have less political risk, and you will see more inflows given the necessity to diversify your portfolios,” said Didier Borowski, the head of macroeconomics at Amundi.
“It is a country-by-country basis where we find pockets with interesting assets.” Outflows from emerging markets are expected to slow this year to US$500 billion from $750bn last year, which was the worst capital outflow in at least 15 years, the International Institute of Finance said in April.
Easing concerns about global and Chinese economic growth will slow capital flight from emerging markets, which took a hit in the first months of this year. Emerging bonds and currencies are among the asset classes that will benefit from capital inflows, said Mr Borowski.
“We will see these assets [bonds and currencies] as very effective assets from a risk-reward perspective,” he said.
“There will be a necessity to diversify, in fact, within the European Union, where you have very low bond yields.” The European Central Bank has adopted negative interest rates and a stimulus programme to help revive growth in the euro zone and nudge inflation. A negative yield means investors will receive less than they paid upon maturity of the bond.
GDP in the 19-country European bloc grew slightly less than forecasts in the first quarter at 0.6 per cent, but still higher than United States and Britain. GDP growth in the currency bloc is expected to increase to 1.6 per cent this year and 1.8 per cent next year, 0.1 percentage points lower than the European Commission’s forecast in February. Inflation will also hover near 0.2 per cent this year, below the European Central Bank’s target of 2 per cent. Mr Borowski expects gold, US Treasuries, German Bunds, the yen and the Swiss franc to benefit from Brexit.
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