x Abu Dhabi, UAEFriday 19 January 2018

US cash injection will aid emerging markets

What's Up? Bankers say emerging markets will benefit the most from the US Fed's quantitative easing initiative.

Following the US Federal Reserve's quantitative easing initiative, bankers the world over have reignited their interest in emerging markets.

Investors are increasingly putting their money into emerging markets funds and specifically the MENA region, says the lender Emirates NBD, based in Dubai.

The Fed announced last week it would pump an additional US$600 billion into the US economy over the next eight months in an attempt to accelerate growth and cut unemployment.

Emerging markets will further outperform the developed markets, said Gary Dugan, the chief investment officer of private banking at Emirates NBD.

MENA-based investors should bias their asset holdings to the emerging and frontier markets, away from the developed world, to obtain optimum returns on their investments, he said.

The term "emerging markets" applies to a broad section of economies from Latin America to India, China and the Middle East. Emerging markets are having a good run. The MSCI Emerging Markets Index shows a gain of 112 per cent in the past six months.

Now the Fed is supplying more doses of liquidity, it appears most analysts will argue it remains unlikely the bubble will burst any time soon.

Given the relatively low valuations of the MENA markets, Mr Dugan said he expected them to attract significant international capital. With oil just above $86 a barrel, the considerably high-yielding bonds available in the regional markets will further encourage capital inflows to the region, bringing higher returns on investments.

While the quantitative easing is expected to keep interest rates very low and stimulate borrowing and spending activity in the US economy, a significant part of this excess cash will be channelled to the emerging market economies that are better positioned in terms of economic development, superior corporate profit growth and secure long-term prospects, Mr Dugan said.