Ashmore Predicts Early 2009 EM Rally

Despite continued price drops and fund outflows, EM investor Ashmore is predicting a V-shaped recovery for EM and a rebound early next year. “As confidence returns and liquidity increases in early 2009, we expect prices depressed by forced sales to gap up,” says head of research Jerome Booth in a note released Monday. “Hence we believe the opportunity to invest is now,” he adds. According to Booth, there have been significant structural changes for EM debt since the 1990s, including better fiscal and monetary management, large reserve levels, low solvency risk and a much more institutionalized and less levered investor base. Ashmore notes the need for more to be done by policy-makers, banks to start lending again, and increased access to trade finance. But it is characteristically upbeat about the potential for an EM rally. “We expect a V shaped recovery in emerging market growth with economies growing strongly again from the first half of 2009 in many cases, though in developed countries the recession and de-leveraging may take much longer,” says Booth. He anticipates a return of secondary market liquidity following the end of developed world investment bank year ends in November-December. The investor also sees more hedge fund redemptions and associated unwinding, with the process continuing through the first half of 2009. “Also in January, new allocations are expected to be made by those waiting for calendar year end and by those who traditionally make asset allocation decisions in January,” Booth concludes. Ashmore has $32bn under management in EM.