Trump, Emerging Markets and Globalisation 2.0

Trump, emerging markets and globalisation 2.0

Over the course of 2016, we at Lombard Odier Investment Managers felt confident to offer a positive view on emerging market bonds, currencies and equities for the first time in more than five years, following a punishing bear market.

We took our cue from the improving fundamentals that we saw, reversing many years of weakness; low market valuations; and what we considered to be the identifiable and manageable nature of the risks involved – China’s imbalances and debt burden, and the strong US dollar. We recommended differentiating carefully in favour of quality and domestic demand, but essentially identified emerging markets as a rare value opportunity in an expensive world.

Six months later, the fundamentals have continued to improve and the valuations have, if anything, pulled back the highs of the recent recovery. But one thing looks to have changed dramatically: the risk. The prospects for emerging markets look very different with President Trump in the White House.

Here, the warnings tend to focus on two things: the potential for further strengthening of the US dollar, with its attendant risks of capital flight from the emerging world and balance-of-payments strains; and, especially, the impact of more aggressive US protectionism focussed specifically on China.

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This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This document does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This document contains the opinions of LOIM, as at the date of issue.
Past performance does not guarantee future results.
Emerging markets securities may be less liquid and more volatile and are subject to a number of additional risks including, but not limited to, currency fluctuations and political instability.
If investments are denominated in a currency other than that in which the majority of the investor’s assets are held, the investor should be aware that changes in rates of exchange may affect the value of the funds’ underlying assets. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk. Issued by Lombard Odier Asset Management (Europe) Limited, authorised and regulated by the Financial Conduct Authority (the “FCA”), and entered on the FCA register with registration number 515393. ©2017 LOIM. All rights reserved