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PIMCO's head of asset allocation for EMEA, Geraldine Sundstrom,
said commodity prices appeared to be hitting a bottom, Chinese
growth was stabilizing and the dollar was no longer on an
uptrend.
"The landscape in emerging markets has been steadily improving
over the last few months... With this in mind, we are beginning
to redeploy capital to EM where we can find good value,"
Sundstrom said in a note.
She said several emerging currencies such as the ruble and
Mexican peso offered high yields and had weakened significantly.
On local bonds, she highlighted yield curves such as those in
Mexico and South Africa as attractive, "as we believe investors
have priced in too many interest rate hikes".
PIMCO also expects negative earnings momentum in emerging
markets to end soon and noted that free cash flow yields in
emerging markets were higher than in the developed world.
"From a portfolio perspective, there has been little incentive
to venture out of developed markets in recent years," Sundstrom
wrote, adding that equities as well as bonds had provided strong
returns thanks to low interest rates and central banks' bond
buying.
"Now, however, valuations in the developed markets fully reflect
the benefits of a lower discount factor. The tailwinds of
accommodative central bank policies are fading and may even be
disappearing."
(Reporting by Sujata Rao, editing by Karin Strohecker)
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