Top 2017 Emerging EMEA Picks Are All Things Russia; Avoid Turkey

NN Investment Partners sees the Russian equity market as an “obvious candidate.” Higher oil prices, a stronger ruble and easing inflation should encourage the country’s central bank to loosen monetary policy, said Nathan Griffiths, who helps manage about $750 million. Griffiths also expects the FTSE/JSE All Share Index in Johannesburg to rally, benefiting from curbs on President Jacob Zuma’s power.

Aviva Investors considers small-cap companies in developing markets attractive, especially in retail, health and industrials. Ian Pizer, the London-based head of investment strategy and co-fund manager at Aviva, says heavy domestic ownership gives those companies a buffer.

Capital Economics Ltd. says banks in central and eastern Europe, the Middle East and Africa are improving their financial ratios, though lenders in Russia and Turkey are still in the doldrums.

Bonds

Deutsche Bank AG expects growing stability in domestic politics to benefit Russian and South African bonds. Russia should gain from an improving relationship with the U.S., while South Africa will probably avoid a debt downgrade, the German lender says.

Denmark-based Global Evolution Fonds A/S favors Egypt’s local bonds, after yields rose to almost 20 percent and the currency’s value halved following its free float.

Global Evolution recommends Nigeria to investors who can make a “leap of faith” as he expects political stability to improve next year and the government to make a second attempt to float its currency. Ghana’s peaceful transfer of power after its 2016 presidential election, and increased oil production make its local-currency notes and Eurobonds attractive, says Stephen Bailey-Smith, who helps manage $4.2 billion at Global Evolution.

Neuberger Berman Europe Ltd. says Turkey’s foreign-currency bonds are cheap as it deems domestic risks to be fully priced in.