There are some clear favorites among investors for 2017. All things Russian and Indian are popular, as are Brazilian corporate bonds and Mexico's cheap peso.
The top calls for this year are centered on markets where the political climate is improving and assets are less vulnerable to external shocks arising from higher U.S. borrowing costs and President-elect Donald Trump's policy announcements.
For investors who borrow in currencies with low interest rates and buy high yielding ones, Russia's ruble is a top bet. UBS Group AG says the ruble's carry trade could potentially return 26% over the next 12 months, the most among developing EMEA peers. Aside from having relatively high interest rates, Russia is benefiting from rising oil prices. That helps make its equity market an “obvious candidate” for NN Investment Partners.
Some investors see President Jacob Zuma's power waning, boosting the appeal of South African stocks and bonds, especially given that some say the country will probably avoid a debt downgrade.
The currency is the most attractive among developing Latin American peers. Not only is the peso cheap, it will benefit from a hawkish Banxico and a U.S. presidency that's less protectionist than expected, says Enrique Diaz-Alvarez, chief risk officer at Ebury Partners.
Petrobras bonds are “still cheap,” Banco do Brasil's Coco bonds have upside and Samarco is an aggressive bet as the company will likely resume operations this year and renegotiate its bonds, says Carlos Gribel, the head of fixed income at Andbanc Brokerage in Miami.
The nation's stocks will benefit from rising copper prices and the prospect of more business-friendly policies after 2017's presidential election, according to Morgan Stanley, JPMorgan Chase & Co. and BTG Pactual Group.
Given the possibility of a protectionist turn from the U.S. under Donald Trump this year, the South Asian nation's assets are looking increasingly attractive. Prime Minister Narendra Modi's November decision to withdraw high-denomination bills may see a slowdown and prompt more interest-rate cuts, which will be good for bonds.
Many of the biggest companies on the benchmark share index are either domestically focused consumer firms or miners, which should benefit if coal and nickel prices keep rising in 2017. Indonesia's higher-yielding bonds are a perennial investor favorite, especially since the current-account deficit has narrowed significantly in the last few years, making the country much less vulnerable to higher U.S. borrowing costs than it was during the taper tantrum of 2013.