Emerging markets are well placed to benefit from an uptick in global growth, particularly those that are commodity exporters. Yields are good and valuations do not look excessive in light of the improved outlook.
The prospect of further rate rises by the US Fed should not deter investors from emerging market assets.
Since 1990, in fact, the MSCI Emerging Markets index has on average outperformed the S&P 500, Eurostoxx 600 and Nikkei during periods when US yields increased significantly.
Of course, it is important to beware of countries which are at risk from the protectionist policies touted by President Trump's new administration, none more so than Mexico. Yet even here there are opportunities.
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The copper miner GrupoMexico, for example, predominantly operates outside of Mexico and will therefore benefit from the peso's devaluation when repatriating earnings, which will also be boosted by the wider commodities upcycle.
On the other hand, Russia is a country which could benefit directly from President Trump, if a thaw in relations with the US precipitates the lifting of sanctions.
In any case, Russia is likely to appear as one of the main beneficiaries of the increase in oil prices, particularly if OPEC and other oil producing nations keep to their commitment to cut production. Russian inflation-linked bonds are attractive in this context.
The progress of reform agendas in emerging markets presents further opportunities. India, for example, is beginning to see the impact of Modi's recent demonetisation, which is reducing the grip of the shadow economy and driving up bank deposits.
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Although short-term volatility is still to be expected, India's financial and consumer industries will benefit in the long run. In Brazil, greater fiscal prudence and social security reforms have improved the outlook for inflation-linked bonds.
All the while, investors should keep a watchful eye on China, which is also at risk of being targeted by Trump's protectionist agenda. The country is not immune from policy missteps by its own leaders, and the outflow of capital, combined with the rising debt-to-GDP ratio, gives cause for concern in the medium term.
Didier Saint-Georges is managing director and a member of the investment committee at Carmignac
Bull Points
• Good prospects for economic growth
• Strong outlook for commodity exporters
Bear Points
• Countries at risk of potential US protectionist policies
• China not immune from its own policy missteps and credit addiction
