New generation of EMD arrives

The recent underperformance of Chinese markets has created an opportunity for investors, according to Dr Daniel Murray, chief economist, EFG Asset Management.

Dr Murray said that trend growth in China is expected to slow to 5-6% over the next 10 years as the economy matures and consumption takes up a larger share of GDP. Dr Murray commented: “Recent underperformance of Chinese equities means that the market in aggregate looks to be attractively valued.Furthermore, an environment of strong growth, increased sophistication, rising wealth and greater stability provides a decent backdrop for a range of companies to grow and develop. This will present many individual investment opportunities along the way.” He added that other potential risks to China’s growth are financial sector stress, size and complexity, central control, and corruption. Separately, F&C head of emerging market debt, Jonathan Mann, said that the strength of emerging market debt (EMD) can be seen by the number of credit ratings upgrades since 2007 and the growing demand for EMD from investors. Mann said that 57 countries have now issued offshore sovereign bonds denominated in US dollars, and a new generation of issuers is coming to market, such as Kenya, Banglades hand Thailand. He added: “The next generation of emerging debt markets clearly offer exciting in come and growth potential to fixed income investors, but they are not without higher associated risk. Key to success in this area will be the detailed understanding of the political and economic drivers at work within each economy.”