Focus on fundamentals: virus volatility provides entry points for EM equities

Friday 31 January 2020

Research / Market

The coronavirus has been the strongest driver behind the recent volatility in financial markets, providing the trigger for a break in the rally in risk assets, which had been running uninterrupted since October.We should be aware that the trough for markets could be well in advance of the peak of the epidemic, as markets tend to overreact at the beginning of a crisis and then stabilise and rebound, despite the continuation of the negative news flow.

Unless the “elevated uncertainty” is able to derail the global economy into a shock – which is not our scenario now – excessive downward setbacks in prices could provide entry points for asset classes with attractive valuations and good fundamentals. In particular, we see selective opportunities in EM equity given the reacceleration of earnings growth, attractive valuations and the prospect of a weaker USD. The short-term issue due to the Chinese situation is an opportunity to add to this asset class, barring any disruption to the global outlook.

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