Krishna Memani, chief investment officer at OppenheimerFunds, has warned the combined effect of weakening oil prices and dollar strength would be the biggest risk to markets globally as it indicates an emerging markets slowdown.
Speaking to Investment Week, Memani said a slowdown in emerging markets would lead to a repeat of 2015, when asset prices collapsed following a deceleration in Chinese growth.
However, Memani said the asset class is the area where he is the most bullish over the next two years, despite the recent sell-off, as a result of stable inflation in the region.
Last month, emerging markets slumped after the US dollar hit its highest level since December 2017, due to the increasing difficulty for emerging market countries to pay back dollar-denominated debt and investors fleeing emerging market bonds.
Furthermore, the CIO said he expected the dollar not to strengthen from this position, pointing to broad global growth. However, he warned if he was wrong on his prediction, then "all bets were off".
"From a longer-term standpoint, the emerging markets growth story is intact with increasing urbanisation and improving demographics," he said.
"In the medium term, the inflation picture in emerging markets is significantly better than the US, which gives policy flexibility for countries.
"If rates were rising in the US, alongside weakening growth in emerging markets, it would be catastrophic. However, this is not the case."
Solid emerging market demand, tightening supply and rising geopolitical tensions have sent oil prices soaring over the past year, with Brent Crude shooting over 75% from the year lows seen in June 2017 to break through $80 a barrel for the first time since November 2014.
Memani said he expected oil prices to stabilise between $65 and $80 a barrel due to strong global growth and a more stable picture on the supply side.
"That is why oil price strength is so critical as any weakness will signal that emerging markets are selling off."
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