Pacific Investment Management Co. is standing by its bullish position on emerging markets, even as a rout in the asset class deepens on concern over global interest rates and the plight of China’s economy.
In the past two weeks, developing nation stocks gave up the last of their gains for the year, while currencies posted their lowest close since February. Local- and hard-currency fixed income indexes are heading toward their worst quarterly returns since the third quarter of 2022, according to data compiled by Bloomberg.
“It’s not been anything of true concern, we haven’t seen any EM-driven panic,” said Pramol Dhawan, Pimco’s head of emerging-market debt. “This has just been a broader risk-asset selloff.” Dhawan said there is a “disconnect” now between what the market is pricing in regarding recession probabilities, and Pimco’s views. According to economists surveyed by Bloomberg, the US faces slightly more than a fifty-fifty chance the economy will slide into recession over the next year. Traders in the market for fed funds futures, meanwhile, have now pushed back the timing of a first rate cut from the Federal Reserve to the middle of next year.
“There’s a warranted view of a cautious overall tone, but within pockets where we like risk, we think there are collective EM opportunities,” he said. “We like EM currencies within that spectrum.”
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