Emerging markets ‘tough’ for investors

Bloomberg

If you lost money on emerging Asian bonds and currencies this year, be warned: the first half 2019 may see more of the same.
In what could be an unwelcome replay, risk assets are likely to remain at the mercy of the US-China trade war, a messy Brexit and rising US interest rates.
Almost all emerging Asian currencies are expected to weaken by the end of June, while bond yields are forecast to rise for countries including Indonesia, India and Thailand, according to estimates compiled by Bloomberg.
“EM Asia is one in which we believe there is still pressure for yields to move higher and curves to steepen, based on our view of the US Treasury curve,” said Roland Mieth, emerging-markets portfolio manager at Pacific Investment Management Co. in Singapore.
Reports due on Chinese manufacturing PMI, South Korean exports and Singapore gross domestic product may provide further evidence the region’s economy is losing momentum.
The Bloomberg JPMorgan Asia Dollar Index has fallen almost 5 percent this year, set for the biggest annual decline since 2015. A Bloomberg Barclays index of emerging Asian government debt is heading for its first annual loss in three years.
While the US and China are scheduled to meet in the second week of January for trade talks, Citigroup Inc. says even if the dispute is resolved, the damage can’t be immediately reversed. Asia’s biggest economy is already feeling the chill: retail sales are cooling and industrial profits are down, prompting policy makers to pledge more stimulus.
There are at least some reasons to be hopeful for emerging Asian assets: oil prices have dropped about 40 percent from their October peak, which is a boon for countries that import the commodity. Central banks remain vigilant, while a growing number of analysts, including those at Goldman Sachs Group Inc. and UBS Group AG, say the dollar is close to its peak. Meanwhile, positions betting the dollar will strengthen are near the highest in almost two years.
“We see less headwinds for Asian local markets from the US dollar as we transition into the new year, but slowing global growth and continued trade frictions will contribute to a challenging macro backdrop,” said Stuart Ritson, portfolio manager for emerging market debt at Aviva Investors in Singapore.