Emerging markets will make a comeback in 2013, according to Russ Koesterich, chief investment strategist at BlackRock.
Although he predicts markets will remain volatile in the first half of the year, Koesterich anticipates this year will be good for equities.
“The market has obviously gotten off to a very strong start. While we expect a good year for equities, [it will] probably not be this strong throughout the entire year. While valuations look attractive, I think there is some risk that economic growth, at least early in the year, is going to disappoint,” he told Yahoo.
Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.
“We do like equities but I think what investors want to think about in terms of what leads the market [is] probably more on the international side than domestic. The best place to be in our opinion for 2013 will be leveraging to those segments of the market that are the most exposed to emerging markets.”
In particular, Koesterich urged investors to directly invest in Chinese, Brazilian and Indian stocks, but noted that U.S. multinationals are also attractive since they are exposed to the improving market conditions in those countries.
China, India and Brazil have all struggled to preserve formerly rapid growth rates as the global market has slowed down. The negative outlook by investors has made emerging markets relatively cheap, since local economies are recovering and the fear of inflation has subsided, according to Yahoo.
Brazil's Bovespa stock market is up approximately 2 percent in one year, compared with 3 percent for the Shanghai Composite Index (A shares) and 25 percent for India's Sensex Index, according to FactSet data cited by Yahoo.
Although international equities may dominate in 2013, Koesterich said he still prefers U.S. stocks to bonds.
The BlackRock strategist noted bonds may be “perceived as riskless,” but that “the reality is … there’s a lot more risk in that segment of the fixed-income space than perhaps people realize.”
While he believes the secular bull market in Treasurys has ended, he is not necessarily calling for a “meltdown” in the Treasury market. He does, however, predict rates will “grind higher” in the second half of 2013, possibly to 2.25 percent. For investors who want some yield with balanced risk, Koesterich recommends corporate and municipal bonds.
In the long term, investors should lower their fixed income allocations because “too much exposure to interest rates will lead to a drag on portfolio performance,” he told Yahoo.
Adam Parker, chief U.S. equity strategist at Morgan Stanley, is a fan of companies that do heavy business in emerging markets, according to The Wall Street Journal.
Parker tells The Journal he favors companies with strong emerging-market revenue because he expects slow growth in the United States and Europe. His picks include General Motors, which has a big presence in China, and Emerson Electric, which is active in Asia and Latin America.
Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.
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