Avoid Emerging Market Stocks Dependant on Exports

Investment selection is more important than before as many emerging market companies could be potentially disrupted by targeted protectionism, says Lombard Odier

Lombard Odier 6 January, 2017 | 12:26PM
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All this week, Morningstar.co.uk will be bringing you a Guide to Investment Ideas for 2017; stock picks, market reactions and political forecasts from the investment professionals. Here, Didier Rabattu, Global Head of Equities at Lombard Odier Investment Managers, gives his outlook for the year.

Ahead of the inauguration of Donald Trump later this month, the risk of more protectionism in the US is increasing investors’ concerns about emerging market assets. However, global trade retrenchment is a trend that has been in place since the global financial crisis. Emerging market countries have therefore favoured their own domestic economic dynamics, and this will likely continue or even accelerate. However, at the micro level, investment selection is now even more important than before as many individual companies could be heavily exposed to exports and thus potentially disrupted by targeted protectionism.

More Reliant on Domestic Dynamics

At the country level, since 2010, internal domestic dynamics – both consumer and government spending – in key emerging market countries have generally been a stronger driver of growth compared to trade. This is an illustration that since the financial crisis, emerging market economies have been more reliant on their own internal dynamics to support their fledgling economies against decreasing global trade. Only in the cases of Taiwan and South Korea has domestic consumption been structurally weak compared to the contribution of trade to each country’s GDP.

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About Author

Lombard Odier  is one of the largest independent Swiss private banks, specialising in private asset management.

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