EM assets now appear relatively more attractive - SocGen

Research Team at Societe Generale, suggests that the Brexit dimensions most relevant for emerging markets are the impact on risk sentiment, downward pressures on domestic EM growth, and repricing of developed markets’ monetary policy.

Key Quotes

“EM assets now appear relatively more attractive in light of Europe’s unravelling. Within EM, CEEMEA countries have the strongest trade ties with the UK and with the EU, and are likely to see GDP growth slow modestly.

The CEE region is also in focus due to the heavy flow of remittances from the UK, dependence on EU funds, and political implications. With respect to valuations, the downward global repricing of interest rates amid looser monetary policy conditions extends a low-for-longer rates environment that boosts the appeal of EM assets.

Developed markets’ policy accommodation will likely also spill over into easier monetary policy conditions in EM. The high positive yield differentials offered by EM appear increasingly attractive in the absence of compelling alternatives. Additionally, we note that technical arguments further strengthen the case for EM assets.”