It has also been global investor preference lately to focus on the North Atlantic.
Since 2010, emerging markets have significantly underperformed developed markets, causing the curious and contrarian to start to question whether now is the time to re-invest.
Alliance Bernstein’s director of Asia Pacific Fixed Income Hayden Briscoe is one of them, with a particular taste for Asian currencies.
According to Mr Briscoe, as commodity prices recovered in the three years after the late 2008 collapse of Lehman Brothers, an interesting thing happened.
“The trading profiles of the Asian and Latin American currency baskets diverged,” he said.
“While Asian currencies resumed their secular rise and exceeded their previous peaks, Latin American currencies recovered partially.”
Since 2011, Asian currencies have traded within fairly consistent parameters, while Latin American currencies have fallen back to 2009 lows.
The reason for the divergence is that Latin American exporters’ currencies have remained tied to the fortunes of commodity markets, which have waned since 2011 as global growth has slowed and new production has come on stream, putting further downward pressure on prices, Mr Briscoe said.
“Asian currencies, meanwhile, have remained resilient partly by default: as the global financial and European sovereign-debt crises forced many developed countries to cut interest rates to near zero, yields in Asia seemed more attractive, resulting in capital flows that buoyed the region’s currencies,” he said.
While global investors look to short to medium-term growth potential in the US and Europe, Alliance Bernstein believes the strength in Asian currencies will continue, and even increase, for a while yet.
“Our research suggests this structural advantage is about to be enhanced by a ‘commodities dividend’ for Asian countries and currencies, as the fall in commodities prices allows margins in Asian businesses to expand, leading eventually to further investment and recovery across their economies,” Mr Briscoe said.
“That assumes growth in commodities-dependent countries won’t return soon to levels that will cause commodities demand and prices to rise,” he said.
“There seems little risk of China – a key commodities consumer – being forced to maintain moderate growth as it tries to deleverage its economy.”
However, not all Asian countries will benefit to the same extent.
India and Indonesia have poor external positions.
“In many cases, however, current account surpluses are rising and we expect that some - like Malaysia’s - could double this year,” Mr Briscoe said.
“All this speaks to the need for active investment management,” he said.
“It also points to a much broader theme: the need for most global investors to stop thinking of emerging markets as a homogenous bloc and to look for points of differentiation between individual economies and regions.
“On that basis, many Asian currencies now represent an attractive opportunity, in our view.”
