US gains traction as emerging markets lose their sheen
Australian investors still sending record sums offshore, but choosing markets with care
Aussie investors heading to US market.
Australian investors may still have their sights firmly set on international investments, but they are steering clear of emerging markets left struggling by US Federal Reserve monetary policy.
According to recent market analysis undertaken by GaveKal and released by Certitude Global Investments (Certitude), quantitative easing in the US has created a ‘false’ price for the US dollar, leading to a misallocation of capital and distorted trade flows between the US and many emerging markets.
CEO of Certitude, Craig Mowll, explained that while from the US perspective quantitative easing has helped stimulate the domestic economy and improve the balance of trade, it has also increased US net exports. One consequence of this is a reduction in global trade and a significant slowdown in growth of some key markets – primarily emerging markets.
“Because the US dollar is the world’s reserve currency, the US current account deficit needs to grow, not shrink, in order to increase global trade and this isn’t happening at the moment,” he said.
Mr Mowll said that while many emerging markets are struggling, it’s far from all doom and gloom, because the weaker regions are being offset by others in relative positions of strength.
“Countries such as Turkey, South Africa and Brazil are in the more challenging positions, as are those attempting to defend fixed or artificially high exchange rates, like the Ukraine and Argentina,” he explained.
“However, other emerging markets, such as the Philippines, Indonesia and Pakistan, are all travelling along nicely, even despite natural disasters and political crisis,” he said.
Mr Mowll also pointed to the January 2014 Certitude Global Investing Intentions Index Report (CGIII) as further evidence of Australian investors’ more cautious approach to emerging markets.
“The latest CGIII shows net demand for global investments by leading active Australian investors at its highest level since inception. However, investors ranked emerging markets sixth in attractiveness, well behind the top five, which are US/North America, international funds covering multiple regions, Asia, Western Europe and China,” he explained.
Mr Mowll went on to say that these latest results demonstrate that investors are less concerned with volatility and currency risk in the US and Western Europe than they have been in the past.
“On the other hand, when it comes to emerging markets, growth expectations continue to be ratcheted down, influencing investors’ allocation decisions,” he said.
In conclusion, Mr Mowll said that, despite Australian investors’ strong sense of optimism towards international investments, exposure to emerging markets is unlikely to rise in the near future.
