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BlackRock's Rieder: why EMs are so disappointing

BlackRock's Rieder: why EMs are so disappointing

Growth in emerging markets will continue to be ‘disappointingly slow,’ but even as stock markets in China tank, BlackRock's Rick Rieder believes the deceleration in developing markets is not enough to bring down global growth.

Amid the volatility in global markets since Monday’s sell-off, BlackRock's chief investment officer for fundamental fixed income said that global growth, in one word, is ‘okay’ and that time will heal the current dynamics in the market.

In July, the IMF projected global growth at 3.3% in 2015, marginally lower than 2014 as there’s been a gradual pick up in advanced economies and a slowdown in emerging markets.

During a conference call on Wednesday, Citywire AAA-rated Rieder gave four reasons why reasons why emerging markets are disappointing investors:

1. Manufacturing

‘It has been a big disappointment, and some of that is down to demographics and technology…. EM is clearly suffering because manufacturing is weak and it will stay that way for a bit,’ he said.

2. Trade

'Global trade has collapsed, EM relies heavily of exports. China obviously being a derivative of that.’

3. Commodities

‘It depends on commodities aggressively. It’s a huge headwind to emerging markets today when you have commodities decelerate as quickly as they have.’

4. Debt

‘EM has an adjustment problem. That’s a big deal. It’s lived beyond its means throughout the early 2000s which means it was funded with leverage and an accumulation of large current account deficits and high levels of inflation. It takes a while to work through that impact.’

China crash

Rieder, co-manager of the BGF Fixed Income Global Opportunities fund, said that it is a concern that the second largest economy in the world, China, is decelerating, but along with time, there is tangible fiscal policy that is coming in that could help.

He added: ‘Can it bring down the developed world and the US? No, I don’t think so… historically, EM faced tangible insolvency problems. You just don’t see that today with leverage and reserves where they are. So while EM continues to be persistently soft, it doesn’t bring down the global economy.’

He also revealed that the fund has been investing in Mexico and India as it sees potential for great yield as well as in the investment grade market.

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