Pimco Remains Upbeat on Emerging Markets

Mewbourne expects that the asset class will continue to benefit from improvements in the economic fundamentals of individual emerging markets, along with supportive global economic conditions. These have dramatically reduced risk even as returns have remained robust.

He says some of the best potential returns can be found in local emerging markets, where interest rates remain substantially higher than in their developed-country counterparts. "Strong macroeconomic fundamentals and deep-seated institutional changes in the conduct of fiscal and monetary policy have set the stage for a secular convergence of emerging-market local interest rates toward developed-country levels," he says.

As for contagion, Pimco fully expects there will be additional bouts of volatility but expects they will more likely be transient than permanent.

On the political front, the fund family will be paying close attention to developments in those countries that just completed presidential elections, such as Brazil, Colombia, Mexico and Peru, where the focus will shift to policy implementation. On the financial side, Mewbourne says risks remain for those countries with large current account deficits such as Hungary, Turkey and South Africa.