Emerging markets 'well-positioned' for growth: Strategist

As global markets grapple with interest rate uncertainty, RBC BlueBay Asset Management EM Sovereign Strategist Timothy Ash and KraneShares Senior Investment Strategist Anthony Sassine join Market Domination to offer tips for how investors should navigate emerging markets at this time.

Ash highlights a positive outlook, stating that there are "a lot of bottom-up stories that are beginning to turn around" globally. He cites emerging markets such as South Africa, Sri Lanka, and Turkey that are experiencing improvements driven by factors like elections, debt reform initiatives, and more.

Sassine advocates for investors to maintain exposure to emerging markets, asserting that in the short term, these markets are "well-positioned" to outperform in terms of valuation and growth prospects. However, he acknowledges that the situation varies from country to country. Sassine identifies China as an investment opportunity, citing value "across the board" in areas such as clean energy and healthcare.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

Editor's note: This article was written by Angel Smith

Video Transcript

- In today's Yahoo Finance playbook, we're taking a look at how investors should best position themselves in emerging markets. With three cuts from the Fed still on the table, in the year ahead, global economies could get a boost from easing US monetary policy. But geopolitical risks and loaded election calendars they may pose potential headwinds in the near term. Here to discuss more is Timothy Ash Bloomberg's, emerging markets sovereign strategist at RBC Global Asset Management.

And Anthony Sassin, Krane shares senior investment strategist. And Tim let me begin with you. What's the state of emerging markets here? With the Fed on pause but having raised interest rates in the US to levels that are far at least, the-- excuse me, the highest here in about 40 years and far surpassing that. What we're seeing in many even developing economies around the world? What is the state of emerging markets here?

TIMOTHY ASH BLOOMBERG: Well it's a lot of the bottom up stories are beginning to turn around. We've had successful debt restructuring in Zambia, there's hopes about Sri Lanka, a lot of-- you mentioned geopolitical risks obviously lots of concerns about the Middle East-- but there have been some beneficiaries. Egypt got a huge financing package.

We're seeing a lot of people go into local Egypt rates and ethics. We're seeing Turkey turnaround in the unorthodox monetary policy. Kind of story Argentina again, people are giving up on Argentina. Given all the debt restructurings. We have a president who's pushing on with a reform agenda. South Africa you mentioned elections again.

The markets traded off thus created opportunities. If the worst doesn't happen in South Africa and we get Cyril Ramaphosa, securing another term, and maybe doing an alliance with the more reform minded parties. So there are a lot of bottom up interesting stories. And that seems to be the major theme rather than the Rate story.

- Anthony, I want to bring you in here as well. And likewise kind start with your high level view. Here Anthony we obviously talk a lot about the US on this show, but we shouldn't forget emerging markets. Are they broadly speaking Anthony? Are you bullish? Do they look poised to outperform here?

ANTHONY SASSIN: I advise investors to always have an emerging markets exposure. But you look at it in the short term, I definitely think it's very well positioned to do well in the next three to five years, giving where we are in valuation and growth. And given the individual stories that you have from one country to another.

Starting with China, which has been struggling a little bit over the past two years because of COVID regulation and consumer sentiment. But that's going to come back, valuations are very low. Going to Korea, South Korea and Taiwan, where the AI craze is really taking hold right now and continues to exceed expectations. Or going to even Brazil, which is very cheap.

Or even looking at the GCC. , With countries like Saudi Arabia and UAE where you have really major top down reforms that are truly ambitious and driving growth for multiple years. So looking at emerging markets today where valuation is compared to S&P 500 close to 20% 30% discount, and the growth prospects for the next three to five years, I'm very comfortable saying that it has a good probability of out-performance.

- And Tim we were just talking about Brazil real quickly, but I want to focus in on Latin America. From memory Brazil is one of the first emerging markets to raise rates way back in 2021, something around there. Ahead of the game and that got them ahead. Where is Brazil right now? And some of the other economies in Latin America, how have they adapted to the world interest rate structure that's kind of been dominated by the US?

TIMOTHY ASH BLOOMBERG: Well you're right. A lot of Latin America but actually also central Europe was very preemptive and proactive. I should say in terms of raising rates, given the inflation shock, now we're seeing inflation moderate pretty quickly, that's allowing central banks to cut rates or have cut rates. And obviously that's great for fixed income space.

It's helping confidence more generally. So we've got a good group of countries that I think are doing the right thing in terms of policy, I mentioned Turkey their, massive transformation. In that story remember, Erdogan with massively negative interest rates, currency crisis, currency pressures-- they're now one of the standouts and they really massively raised rates of 50%. We're hopeful on the turnaround story there after these local elections that are coming up. So a year ago, two years ago, the bottom up stories were terrible across emerging markets.

And we've seen an incredible transformation because of a combination of different factors. The peculiarities in the individual countries. The geopolitics as I mentioned, that played out relatively well for certain credits. Can Egypt bail out? Pakistan also succeeded in getting a bail out? But it's-- and it actually performance certainly in fixed income space. It has been pretty strong in the last six months or so.

- Anthony, I want to bring you back here as well. Talk a little bit more about China. You know it's interesting Anthony, I think we've had a number of strategists on the show. And I think generally they-- feel like they're steering clear of China. Just given the shaky economy there Anthony, and geopolitical tensions you know the reasons. I'm interested with you. When you look at China where specifically do you see value Anthony? Are there any certain sectors, industries?

ANTHONY SASSIN: I see value in China across the board. But mostly in the industries and sectors that are in the government's plan for the future. So what I want to look at China, I'm looking at the internet economy. Which is the engine for transmission-- engine for consumption, which is also the place where most of the new grads find their first jobs.

It is the industry that employs most of the engineers and the business management new grads. Also looking at clean energy, which is a big part of China's policy today, whether solar or electric vehicles. Health care now we're starting to hear rumbles that the China-- the Chinese government is going to start supporting the biotechnology industry, which is related to innovative drugs. That could open up a whole opportunity for these companies.

Because China's really patients or citizens are very under-served. Especially when it comes to sophisticated diseases. But if you look at China, there's innovation across the board. There's growth across the board. It's just the consumer sentiment that is still a little bit depressed and needs to come back.

- 30 seconds, real quick here. Anthony, should China even be considered an emerging market given its size and whatever other reasons?

ANTHONY SASSIN: Absolutely. It is an emerging markets. But we look at it very differently as a different asset class, especially when you compare it to emerging markets ex-china. Emerging markets ex China tend to be a lot more correlated with US rates and inflation. China is not. China is much more broad in terms of innovation. We believe if you break down the two, you're able to generate better alpha in emerging markets and manage your risk much better.

- All right. Got to leave it there. Really appreciate both of you Tim and Anthony for stopping by here.