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That Emerging Markets Rally Might Finally Be Real

Mark Gilbert
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That Emerging Markets Rally Might Finally Be Real

(Bloomberg Opinion) -- Want to know whether the much-heralded rally in emerging markets will arrive in 2019? Check out the recent share price performance of Ashmore Group Plc, one of the best-known fund managers specializing in the asset class.

Shares of Ashmore, which manages about $76 billion in emerging markets, have been on something of a tear recently: On Wednesday, they completed eight consecutive days of gains, their longest winning streak since February 2017. They gave up some of that advance on Thursday.

Not only does Ashmore's recent performance leave its peers in the dust for this year, as the chart above shows, it marks big a turnaround in sentiment about the fund manager. A month ago, bearish wagers against the stock reached their highest level in two years, with short positions accounting for 5.25 percent of the outstanding equity, according to HIS Markit data. Crispin Odey partly dodged the bullet, but not completely; his firm, Odey Asset Management LLP, the biggest bear on the stock, reduced its net short position to 2.01 percent as of Nov. 2, down from 2.42 percent on Aug. 15.  

Ashmore's gain of more than 6 percent in November reflects growing optimism for emerging markets generally. Wall Street is growing almost uniformly bullish on the outlook for them next year, with Morgan Stanley's assessment shifting directly to overweight from underweight, as my colleague Shuli Ren has noted.

With Federal Reserve Chairman Jerome Powell saying on Wednesday that the Fed funds rate is “just below neutral,” in contrast to his Oct. 3 statement that borrowing costs were a “long way” from balanced, traders are reassessing the outlook for U.S. rate hikes in 2019. That in turn could halt the dollar's rally, in turn boosting emerging-market currencies.

Some of the renewed enthusiasm for emerging market assets also reflects how cheap they now look, especially relative to their developed market counterparts.

Strategists at UBS Group AG are forecasting gains of as much as 8 percent for the MSCI Emerging Market index next year. The Swiss investment bank also sees a rebound in emerging-market debt. It predicts a turnaround that will deliver returns of 4 percent on hard-currency bonds and 6 percent from local-currency debt after both flavors of fixed-income lost money this year.

Ashmore attracted net inflows of $1.9 billion in the three months through the end of September, the bulk of which flowed into its fixed-income portfolios, it said last month. With sentiment toward emerging markets warming, its salesforce should have an even easier pitch to make to investors next year.

To contact the author of this story: Mark Gilbert at magilbert@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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