Countries where investors should buy or avoid now: T. Rowe Price

China’s financial woes took a toll on emerging markets, but one pro said there are still opportunities.

The ETF tracking the MSCI Emerging Markets index (trading under the symbol EEM) is down 19% in the past 6 months while the Shanghai Composite index (000001.SS) fell 17% during the same period. Nearly a quarter of the EEM’s assets are based in China.

Adding to concerns about emerging markets is the anticipation of the first U.S. interest rate hike in nearly 9 years. Higher yields in the U.S. make riskier emerging market assets less attractive.

Laurence Taylor, global equity portfolio specialist at T. Rowe Price, expects short-term pressure on emerging markets but predicts the U.S. economy will improve, helping lift other parts of the world.

“If you go out to next year, we start to see more optimism regarding the U.S. economy,” said Taylor, who supports portfolios totaling $7.6 billion. “Global growth, that's where you get a good setup for emerging market equities.”

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But not all emerging markets are the same. Taylor said investors should look to specific countries, with the Philippines (EPHE) topping the list. “There is an economy and a market which has all the characteristics that investors want from emerging markets—growth, great demographics, [and a] current account surplus,” he said, adding that he is also positive on India (INDA).

Taylor is bullish on Indonesia (EIDO) and called his outlook a contrarian play. The Jakarta Composite Index (^JKSE) is down 15% year-to-date and has underperformed the S&P 500 (^GSPC) over the past 5 years. However, Taylor expects that business and political changes there will benefit the country’s equities markets. He predicts that Indonesia “could very well turn into the India of tomorrow looking out a couple of years’ time."

On the flipside, Taylor sees a slowdown ahead for Chinese growth translating into trouble for commodities-driven economies that sell to China, including Russia (RSX) and Brazil (EWZ).

But another South American country may be more promising. "We still like Peru (EPU),” he said, “much more so than Brazil.”

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