Latest news with #Dorson
CNBC
21-05-2025
- Business
- CNBC
Emerging markets are the next 'bull market' as the sell U.S. narrative gains ground
Emerging markets stocks are in the spotlight again as the "sell U.S." narrative gained fresh momentum, following Moody's recent downgrade of the U.S. credit rating. The Bank of America heralded emerging markets as "the next bull market" recently. "Weaker U.S. dollar, U.S. bond yield top, China economic recovery…nothing will work better than emerging market stocks," Bank of America's team, led by investment strategist Michael Hartnett, said in a note. Similarly, JPMorgan upgraded emerging market equities from neutral to overweight on Monday, citing thawing U.S.-China trade tensions and attractive valuations. A dented confidence in U.S. assets, which kicked into high gear last month marked by a selloff in U.S. Treasurys, equities and greenback, has fueled the bullishness for emerging markets. The MSCI Emerging Markets Index, which tracks large and mid-cap representation across 24 EM countries, is up 8.55% year-to-date. This compares against a 1% climb by the U.S. benchmark S&P 500 across the same period. The difference was more stark in the weeks after April 2, when U.S. President Donald Trump unveiled "reciprocal" tariffs on friends and foes alike. While most benchmarks fell across the board in the immediate days after April 2, the week that followed showed a divergence between emerging market equities and U.S. stocks. Between April 9 to 21, the S&P 500 declined over 5%, while the MSCI Emerging Markets Index rose 7%. Even though U.S. equities and Treasurys rebounded slightly since, the recent Moody's downgrade has reignited traders' concerns. On Monday, the U.S. 30-year Treasury yield briefly grazed above 5% to hit levels not seen since November 2023, while U.S. equities also snapped a six-day winning streak on Tuesday. The events that unfolded recently have reinforced the need for more diverse geographical exposure, said Malcolm Dorson, head of the active investment team at Global X ETFs. "After underperforming the S&P over the past decade, EM equities are uniquely positioned to outperform over the next cycle," he added. "This possible perfect storm stems from a potentially weaker U.S. dollar, extremely low investor positioning, and outsized growth at discounted valuations," he told CNBC. According to data provided by Dorson, in terms of positioning, many U.S. investors have just 3% to 5% in emerging markets, compared to the 10.5% in the MSCI Global Index, which captures the performance of large and mid-cap companies across 23 developed markets. Emerging markets are also trading at 12 times forward earnings "and at a bigger than typical discount" compared to developed markets, statistics from JPMorgan showed. Among emerging markets, Dorson believes India offers the best long-term growth play and spotlighted Argentina's cheap valuation. Sovereign upgrades in countries like Greece and Brazil also helped to make them more attractive, he added. "We could be at the start of a new rotation," said Mohit Mirpuri, equity fund manager at SGMC Capital. "After years of U.S. outperformance, global investors are beginning to look elsewhere for diversification and long-term returns, and emerging markets are firmly back in the conversation," Mirpuri said. A weakening U.S. dollar — pressured by fiscal concerns and rising debt — has historically supported EM flows and FX stability, said a portfolio manager at VanEck, Ola El-Shawarby. But what could set the current optimism apart from previous emerging market rallies that fizzled out? "We've seen EM rallies before that ultimately lost steam, often because they were driven by short-term macro catalysts," said El-Shawarby. This current cycle could be different because of the combination of deeply discounted valuations, historically low investor positioning, and more durable structural progress across key markets, she said, citing India's long-term growth story anchored in domestic demand.
Forbes
08-04-2025
- Business
- Forbes
Latin America, India, Europe, UAE May Provide Cover In Stocks Storm
As President Donald Trump's sweeping global tariffs continues to whipsaw stocks and sow doubts about U.S growth prospects, the search is on for international markets well-positioned to weather the storm. Early signs indicate that Europe, Latin America and India may offer some equities cover. 'Investors who have enjoyed US exceptionalism and over-allocated to the Magnificent 7 and U.S equities and dollar assets are feeling a lot of pain and anxiety now,' Malcolm Dorson, senior emerging markets portfolio manager and head of EM Strategy at Global X ETFs says. Those investors looking for cover may find it in India, Europe, and parts of Latin America, he says. 'Latin America looks relatively safe and relatively cheap,' Dorson says, pointing to a much lower tariff environment across the region as well as currency stability, controlled inflation, and strong monetary policy. Dorson cites Argentina as particularly well-positioned, citing President Javier Milei's strong relationship with President Trump, its success in bringing down inflation, the prospects of a new IMF deal on the horizon, and upcoming mid-term elections that could consolidate Milei's power. 'Brazil also stands out,' he says. 'This is our top contrarian idea for the second half of the year.' He notes that 'not only does Brazil have some of the highest real rates in the world, supporting the currency and controlling inflation, but it's very cheap and odds show that we'll see a significant political shift towards the center in next year's elections.' Varun Laijawalla, portfolio manager at Ninety One, also sees Latin America as a possible safe haven amid the storm. While he refers to tariffs as a 'lose-lose game' that will distribute the pain worldwide, he sees Latin America 'in a sweet spot right now.' He notes that his fund is overweight both Mexico and Brazil. In Mexico, he notes that no additional tariffs were added last week. Given that the majority of Mexico's trade is with the US, 'almost any deal that is struck is a good deal for Mexico, as it presents a removal of an overhang for markets.' Laijawalla believes that the market offers a number of good quality businesses at reasonable valuations that are in fact beating expectations. Case in point is Arca Continental, among Coca Cola's largest bottlers globally, and one of Ninety One's largest holdings in Mexico, which has outperformed both EM and Mexican benchmarks year-to-date. As for Brazil, Laijawalla notes that Brazil is 'the poster child' for 'emerging markets cyclicality,' and he recognizes that 2024 was a tough year for the South American giant. 'Brazilian equities are very badly beaten up,' he says. 'However, with domestic equity allocations at record lows, these stocks are uncrowded trades in a mean-reverting market.' He also believes that this could be the year when Brazil's high interest rates peak, which could unleash 'a very powerful dynamic, where you see capital flows pivot from fixed income to equities.' Beyond the cyclical case, he notes that there are a number of stocks with compelling idiosyncratic drivers, notably aircraft manufacturer Embraer. 'A confluence of aging airline fleets, rising airline profits and Embraer's monopoly in the regional jet market is likely to result in multi-year order wins for the business," he says. Lajaiwalla also believes that Brazilian President Luiz Inacio Lula da Silva could face re-election challenges, ushering in a more business-friendly government after the 2026 elections. Both Dorson and Laijawalla point to a weakening dollar as a tailwind for emerging markets, and both also cite India as a possible storm safe haven. 'India is still a domestic consumption-oriented economy,' Dorson says. He also cites news that the US and India could be on the verge of signing a historic free trade agreement. India has been actively signing trade agreements with countries around the world, and an India-EU pact is also in the works. Dorson says Indian banks boast 'attractive valuations, have significant room for loan growth, and are relatively buffered from international trade." He cites Axis Bank and Federal Banks as 'two quality companies we think are often overlooked.' Laijawalla says India still has room to grow. 'Is the Indian consumer going to consume less Pepsi because of what's happening with tariffs? I don't think so. Is the Indian consumer going to stop buying homes? I don't think so,' he says. 'So there are real company-specific, domestically driven businesses in India that we hold, and they should continue to be driven by the Indian consumer rather than what's happening on Capitol Hill.' Maziar Minovi, CEO of Eurasia Group and a former Goldman Sachs banker and member of its emerging markets strategy team, also sees India as possible shelter from the storm. 'You would be hard pressed to find a country better positioned for the rule of the jungle that we have entered now than India,' Minovi says. 'They have meaningful trade ties with China, but not so much in the sectors that would worry Washington, and Modi and Trump are well-aligned, both in how they approach running their economies as well as a kind of more strongman approach within democracy.' Minovi worries about the hit to emerging markets from both a slowdown in US growth and the inability of China to react swiftly to the new environment. He notes that his firm sees the possibility of a 1.5% hit to growth in the United States this year. 'At best, growth will still be positive, but anemic,' he says. Such a slowdown, Minovi notes, will hit emerging markets hard from Chile to China. China President Xi Jinping's view of the world that 'security and stability of the party come first and economic growth comes second' has exacerbated fragilities in the economy, Minovi notes. 'China is far more leveraged than any country of its national wealth and sophistication,' Minovi says. 'They are constrained by massive debt. Even if China pulls out 'the big bazooka' and pushes a major stimulus campaign, we expect a pretty hard adjustment period for the Chinese.'' 'Unless we see a rapid shift in US tariff policy,' Minovi says, 'this seems to me like a very precarious period for emerging markets.' He also cites the fact that market participants have not yet adjusted their mind-set to this new era. 'They are looking for the reaction function we are familiar with: the committee to save the world. That committee isn't there. Even if the Trump administration shifts in the face of a crisis,' he says, 'it will be ad hoc and completely uncoordinated with the rest of the world. He adds: "There is no Geithner put. There is no Paulson put,' a reference to the belief that government officials like former Treasury Secretaries Tim Geithner and Hank Paulson would intervene to prop up financial markets during crises, effectively providing a safety net for investors. In this volatile environment, Laijawalla urges investors to look beyond the usual markets. He cites the United Arab Emirates as an overlooked but promising one. 'The UAE is moving in the opposite direction on tariffs and barriers,' he says. 'In recent years, they have become more open to trade and more open to immigration.' He cited programs like 'golden visas' that grant expats long-term visas as a boost to the local economy. 'This has led to an influx of expats who take out a mortgage, buy homes, and fortify consumption in the market. There is a virtuous circle at play.' The UAE has also signed a dizzying array of free trade agreements over the past two years, with some 26 countries, including a major deal with India. Laijawalla sees the large Indian community in the UAE as another investment theme. Of the UAE's 10.5 million or so population, it is estimated that nearly 4 million are Indian nationals, and Indian travelers regularly visit Dubai and Abu Dhabi. 'Could the UAE be a way to play the Indian consumer at a fraction of the multiple in India?' he asks. Laijawalla points to four portfolio companies in the UAE that benefit from these trends: property developers Aldar Properties and Emaar Properties, Abu Dhabi Commercial Bank, and the recently-listed food delivery company, Talabat. Malcolm Dorson of Global X also cites Germany's 'massive pivot" toward more fiscal stimulus and the possible return of significant amounts of European funds from U.S markets to their home markets. 'Over the past decade, some $10 trillion of international flows have been invested in US markets. We think a significant portion of that came out of Europe. Will some of that come back? ' he asks. 'This can really move the needle.' In terms of Europe 'plays,' Dorson likes Germany, Greece, and Poland. He likes Greek banks, Polish consumer-facing companies, and the broader DAX index Germany. As for the geopolitical climate, investors are braced for a bumpy ride. 'As we approach future crises, and they will come, the tails of the distribution will be much fatter," Minovi says, a reference to the increasing likelihood of extreme, unpredictable events—so-called "fat tails"—that deviate significantly from the norm and carry outsized consequences for markets and global stability. The storm could last longer than expected and hit harder. The search for safe havens will continue.
