A global fund manager believes the coronavirus has begun to distinguish which part of the emerging markets (EM) are offering more solid investment opportunities from the rest.
“Three months into the pandemic, it has become clearer which EM countries are rising to the challenge and which are not. For example, the bungled responses of Brazil and Ecuador have damaged their leadership role in the eyes of EM investors, while countries like Vietnam, South Korea and Thailand are likely to gain from their effective, transparent policies,” Eaton Vance Management global income co-director Michael Cirami said.
Cirami noted COVID-19 has created the first real situation forcing fiscal and monetary policy measures to be implemented across these developing markets.
“The pandemic represents the first EM crisis in which many countries have tried to cut rates as stimulus – previously, such moves typically provoked investors to flee the local currency. That has been Brazil’s experience this time as well as the real slumped as much as 30 per cent against the US dollar,” he noted.
He added how each emerging market responds will determine the sentiment investors express toward these regions in the immediate term.
“A key measure for EM progress will be which countries manage to pull off both monetary and fiscal stimulus successfully,” he said.
Further, he has identified one EM already being hindered in this regard.
“It’s too early to handicap the winners in this regard, but not too soon to note that one of the laggards has been India, which has been hindered by inefficiencies in transmitting policy to its 28 states,” he said.
The processes managers employ to discover the best investment opportunities has now taken on greater significance, he said.
“During this historic recovery, the fundamental research capability required to identify potential winners and losers has never been more crucial,” he said.