Emerging Markets: Looking Forward, Cautiously and Selectively
Success in EM investing requires recognizing how companies and countries are evolving during the COVID-19 pandemic. We assess market liquidity, corporates’ flexibility to change and valuations to identify opportunities.
We expect the unprecedented breadth and scale of the global policy responses to enable economies and financial markets to recover in time. Indeed, the gradual reopening of economies in China, Taiwan and other geographies is encouraging. Yet, we know the COVID-19 pandemic will have a lasting impact on the structure of the global economy and especially on emerging markets (EM). A new normal is emerging and we are diligently evaluating how EM countries and companies are responding to the crisis to understand where new opportunities lie.
Adequate Global Liquidity a Necessity
Adequate global liquidity is necessary for global markets to function smoothly. Globally, governments and central banks along with international financial institutions, such as the International Monetary Fund, have acted swiftly in the face of the pandemic crisis. Governments are using both monetary and fiscal policies to cushion the adverse impact on their economies. The US Federal Reserve continues to play an important role in providing US dollar liquidity to the world, and open spigots have helped improve liquidity, not necessarily to pre-pandemic levels but certainly to levels better than the crisis lows. Adequate liquidity (plus slowing rates of infection) in turn has helped reduce market volatility.