Relative political stability, economic resurgence in some of the larger nations and the emergence of reform-oriented governments make emerging economies an attractive investment target for next year, according to Swiss investment bank Credit Suisse (Swiss Exchange: CSGN-CH).
In a media briefing on its 2017 investment outlook, Credit Suisse's global head of investment strategy, Nannette Hechler Fayd'herbe, said emerging markets (EM) have evolved to become more resilient to international developments over the last decade, such as the political uncertainty gripping Europe and U.S. President-elect Donald Trump 's plans to hit the reset button on U.S. trade policies.
"(EMs) have a lower exposure to an export-driven (growth) model than is generally assumed. They have a better, balanced-type of growth model," said Hechler Fayd'herbe, adding a large majority of EM countries have only a third of their gross domestic product (GDP) that is dependent on international trade.
Large EMs in Asia and Latin America, for example, have the advantage of a large domestic consumer base, many of whom are just entering the middle class, which allows them to look inwards for growth.
The world's two most populous countries, China and India , are still growing at twice the pace of global growth; recently in its second quarter of fiscal 2016, India saw its economy grow by 7.3 percent annually , whereas China's most recent factory activity data showed continued expansion in its manufacturing and services sectors.
Credit Suisse highlighted three notable investment themes for 2017 where emerging markets looked attractive.
Local and hard currency-denominated debt
The investment bank said it was looking for sources of yield in countries where the political and economic risks were reasonable, and added there was a need to continue diversifying fixed income investments, particularly in markets where corporate credit still played a big part.
"We particularly find emerging market debt in hard currency, but also in local currency, as an important part of investment strategy for next year," Hechler Fayd'herbe said, adding the bank held a favorable view toward Latin America as it offered higher yields than EMs elsewhere.
Hard currencies are usually those that are relatively stable and widely accepted for financial transactions such as the U.S. dollar (New York Board of Trade (Futures): =USD), euro, yen and the British pound.
In emerging Asia, Credit Suisse prefers Indonesia. Current bid-yield on the 10-year Indonesian government bond note is 8.07 percent versus a 2.43 percent bid-yield on the 10-year Treasury note.