The euphoria among investors has come to the point that emerging markets are ready for a sudden sharp decline, although emerging market stocks remain attractive in the long run, said Jordy Visser, investment director at the Weiss Multi-Strategy Advisers hedge fund, which manages $ 1.3 assets billion
Visser is not the first to give an alarm, the agency notes.
Jeff Gundlach, investment director at DoubleLine Capital LP, said emerging market stocks are likely to face temporary weaknesses. Goldman Sachs Group Inc. warned that record high global indices meant a higher risk of retreat.
The MSCI Emerging Market Index shows the longest period without a decrease of more than 10%.
The risk of decline is due to the lack of volatility for a considerable time, said Visser: "People think that it’s very easy to make money now."
Like Gundlach and Goldman, he noted that the correction – a 10% decline – does not reduce the attractiveness of emerging markets.
Investment attractiveness: Goldman's top 10 developing countries noted an "extreme" risk appetite. Investors are very optimistic about 2018. According to Wisser, developing countries have reached a “transition point,” leaving behind the industrial revolution and moving into the digital age.
Technology companies now have more weight in the MSCI EM index (29%) than in the S&P 500 (25%). Visser expects that in three years the market value of Chinese firms (he estimates internet companies especially positively) will exceed the value of American firms and become the largest in the world.
Ironically, US President Donald Trump is likely to accelerate this transition for emerging markets. His protectionist actions are forcing countries from Brazil to Saudi Arabia to pursue complex economic reforms to reduce their dependence on industrial companies, Visser said.
He also believes that concerns over the possible termination of the North American Free Trade Agreement (NAFTA) made the Mexican peso "very underestimated." He expects Mexico's currency and stocks to offset recent losses.
Donald Trump said the discontinuation of NAFTA would lead to a “better deal” to review the 24-year trading pact with Canada and Mexico in the interests of the United States.