Elections put emerging market returns in focus
A slew of emerging markets will be holding elections in the coming months. Gemcorp Capital Chief Economist Simon Quijano-Evans tells Yahoo Finance Live that, in general, there are some early "green shoots" from elections in Poland and Ecuador. However, Quijano-Evans says, looking ahead, "it's going to be tough" and that emerging markets are going to be driven by the events in the Middle East. Watch the video above to find out which markets Quijano-Evans thinks have opportunities for investors.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
- Well, elections across the world are putting emerging markets in focus for investors, as new leadership could mean new opportunities. Argentina's presidential election currently in a runoff with left wing candidate Sergio Massa leading. Now, this comes a week after Ecuador and Poland vote in new pro-business leaders.
And on deck for the coming months are Egypt, India, and Mexico. According to Bloomberg, those six elections can affect more than $200 billion of sovereign bonds. Well, joining us now with his insight into these emerging market moves is Simon Quijano-Evans, Gemcorp Capital Chief Economist. Thank you for joining us this morning here.
So first, I want to set the scene here. Because we talk a lot about rating agencies and how they assess emerging markets. But then you also have your reality index as well. So give us a lay of the land here, especially with these elections in mind, as to what opportunities you see.
SIMON QUIJANO-EVANS: Well, it's very interesting. The elections do form part of this more qualitative backdrop that you're looking at. And if you look at some countries, especially sub-Saharan African countries, then they do look underrated. And you were just talking about Greece just now, and I remember 10 years ago when Greece was pushing through a whole lot of things before elections, after elections. Well, the same thing is happening in emerging markets.
And I think looking at in general, what we're starting to see as you mentioned, is some positive green shoots for example, the election results in Poland, where we see a more reformist government, less nationalistic government coming in. In Ecuador, hopefully a calming down of the situation there.
Looking ahead, it's going to be tough. And I think that emerging markets are really very much going to be driven what's happening in the Middle East. But let's face it, year to date, spreads in emerging markets on the EM US dollar bonds, have been very flat at about 450 basis points. And it doesn't look as though that picture is really going to change very much.
- So then based on what you're seeing then, which are some of the most undervalued emerging markets?
SIMON QUIJANO-EVANS: So if we take countries like Kenya, for example, even Ghana, which is going through a restructuring phase. You have countries for example, like Indonesia in Eastern Asia. You have countries perhaps like even Ecuador. Potentially also Argentina. And what the qualitative data are telling us, this reality index, as I call it, which takes into account education levels, female to male labor force participation rates, internet access, for example, to empower the populations for future democracy.
All of these things show that a number of emerging market countries are under rated. And I think ratings agencies, as we move ahead, need to look more into these qualitative aspects, not just the quantitative type of data that we're seeing as they've always used.
