Brexit effect: Emerging markets now look more attractive to FIIs

Moneycontrol BureauJP Morgan’s Adrian Mowat and CLSA’s Chris Wood feels there is a case for emerging markets to fare better than developed markets even as investors try to figure out the implications of Brexit.“In our view, the direct economic impact of Brexit on broad emerging markets (EM) is likely to be limited, as exports to EU account for 4 percent of EM GDP,” writes Adrian Mowat in note to clients, adding, “the macro drivers for EM outperformance are lower policy rates, end of falling commodity prices, a range-bound US dollar and economic stabilization in China.”Mowat says Brexit does not alter any of the triggers.CLSA’s Chris Woods sees emerging markets gaining from more monetary easing by central banks in a bid to counter possible volatility arising from the Brexit.“Brexit provides an excuse for more monetary easing by the G7 central banks including, sooner or later, the Federal Reserve,” Wood writes.CLSA will raise its outlook on emerging markets to ‘overweight’ from ‘neutral’.“….because of the the increased negative outlook on European equities given the political uncertainties raised by Brexit and given the negative consequences of even more negative interest rates and more negative bond yields for European banks.”