| CHICAGO, June 13
CHICAGO, June 13 Investors are becoming wary of
emerging market assets despite their status as one of the last
vestiges of yield in a low interest rate environment.
Speaking at the Morningstar Investment Conference in Chicago
on Thursday, money managers said investors' expectations for
economic growth and investment return in emerging markets are
too high relative to risks.
"People have grossly underestimated the risks in the
emerging markets," said Richard Bernstein, chief executive of
Richard Bernstein Advisors LLC, a subadviser of Eaton Vance
Bernstein said that earnings estimates for emerging market
companies are overly optimistic and that emerging market
countries are prone to inflation. He cited Turkey as an example.
Turkish Central Bank Governor Erdem Basci said on Wednesday
that the nation's inflation rate will rise in June and July due
to base effects.
Emerging market countries also are vulnerable to a bubble or
overpricing of China's real estate market, said James Montier, a
member of GMO LLC's asset allocation team. The risks of a bubble
extend to cement producers such as Mexico and Thailand as well
as Brazil, given its commodity exports to China, Montier said.
"We have real concerns about the fundamental risk embedded
in emerging markets," Montier said.
Global stimulus measures such as the Bank of Japan's
commitment to inject $1.4 trillion into the nation's economy in
less than two years will also "spell trouble" for emerging
market bonds, said Gibson Smith, chief investment officer of
fixed income at Janus Capital Group. Janus managed $164 billion
in assets at the end of March.
Some investors have said that the act of currency
devaluation, which the Bank of Japan has done to its yen
currency as a result of its stimulus, weakens the competitive
advantage of neighboring countries.
The profits in emerging market debt have also already been
made, said Stephen Smith, managing director and portfolio
manager for Brandywine Global Investment Management's global
He cited trade deficits in emerging market nations such as
Brazil and Indonesia as warning signs. The Brazilian economy's
trade surplus flipped to a $6.2 billion deficit in the first
four months of 2013, Brazil's statistics agency showed.
"You really have to be careful when looking at the emerging
markets," Smith said.