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My Three Big Calls: John Chatfeild-Roberts

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In general, emerging markets have been hit by a cyclical slowdown during a period of high inflation, which has been compounded by the US Federal Reserve’s decision to taper its monthly purchases of bonds. 

The latter has resulted in a draining of liquidity from the global financial system akin to withdrawing oxygen from a flame.

As soon as liquidity begins to reduce, those markets that have attracted short-term speculative investors become the most vulnerable. At the first signs of trouble, this capital takes flight. This has a significant negative impact on asset prices and currencies.

Buying opportunities in emerging markets

It is these movements that the emerging markets are dealing with now. The duration of these flows is anyone’s guess but bargain prices will emerge from the assets cast aside by investors late to join the bandwagon. But this drama is likely to have a number of further scenes to play out.

Record IPO valuations may prove temporary

There was much talk before the financial crisis that emerging markets had decoupled from the developed world. That would now appear to be the case but not in the way that was expected before 2007. Western markets would appear to be in rude health, the US and UK markets, for example, being close to all-time highs.

Looking at these markets in isolation, one would think that euphoric times were upon us. WhatsApp, the messaging system being bought for US$19bn has a greater total value than the whole of Japanese electronics manufacturer Sony; and in the UK, Appliances Online, the web-based white goods retailer, jumped to a valuation of £1.6bn on its first day of trading, giving it a higher market value than Debenhams. 

Pricing new-age opportunities for world domination has been seen before and it can go on for some time but the trend has historically proven to be transitory.

Fed tapering will also hit developed markets

Emerging markets are already feeling the impact of investors retrenching to home markets but the developed world cannot remain wholly unaffected. 

If the Fed decides to increase its tapering rate or macroeconomic data points towards interest rate rises before investors currently expect them, equity markets are likely to falter.

Nonetheless, while liquidity remains abundant and policy measures, in the West at least, remain loose, the environment for businesses seems benign. 

As such, the Jupiter Merlin Portfolios have some cash on hand but remain relatively fully invested, particularly in developed equity and bond markets, which we believe could have the potential to benefit from continued incremental improvements in worldwide economies and markets.

John Chatfeild-Roberts is chief investment officer of Jupiter Asset Management

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