Emerging markets are once again an attractive target for investors due to growing middle-class incomes, flexible Gross Domestic Product (GDP) growth prospects, as well as very young populations as a base for consumption, according to Credit Suisse.
“We particularly find emerging market debt in hard currency, but also in local currency, as an important part of investment strategy for next year,” said Credit Suisse's global head of investment strategy Nannette Hechler Fayd'herbe as quoted by CNBC.
According to the bank’s analysts, emerging markets have derived enough to become more resilient to international conditions, including political uncertainty tied to Brexit, a European banking crisis or Donald Trump's plans to shake up US trade policies.
“Emerging markets have a lower exposure to an export-driven growth model than is generally assumed. They have a better, balanced-type of growth model,” said Hechler Fayd'herbe.
She stressed that the vast majority of emerging market countries have only a third of their GDP dependent on international trade.
Broad emerging markets in Asia and Latin America are at an advantage due to a huge domestic consumer base, while China and India are rising at twice the pace of global growth.
According to Credit Suisse, the US dollar, euro, yen and the British pound despite post-Brexit losses are among the hard currencies due to their relative stability and acceptance for international financial transactions.
Indonesia is seen as one of the stronger-performing emerging markets with bid yield on the 10-year Indonesian government bond note is 8.07 percent versus a 2.43 percent bid yield on the US 10-year Treasury note.
Chinese markets began last year with a massive sell-off but later recovered up to a point after government reforms to stabilize the economy and open China's financial markets to global investors.
Chinese equities, as well as Hong Kong shares, will lead regional equities this year, due to positive valuations, recovery in earnings and buoyant liquidity are able to boost north-south inflows, according to Credit Suisse. Exporters are expected to gain from a gradual depreciation of the yuan, the bank added.
The only way to play in the oil trade will be to estimate energy-related currencies, such as the Norwegian krone and the Russian ruble. Russian currency is expected to fight against absolute dollar strength, said Heng Koon How, senior foreign exchange investment strategist at Credit Suisse.
The bank expects financial markets to remain challenging this year, with global GDP to grow to 3.4 percent from 3.1 percent in 2016.