Investors can buy on the dip, but emerging markets are in 'structural decline': Barclays

  • "We think there are some opportunities to buy the dip in various places on a tactical basis … but we think that emerging markets are in structural decline," Marvin Barth, Barclays' head of foreign exchange, told CNBC.
  • Economies with more significant fiscal deficits and less credible monetary policies are going to come under renewed pressure, he said.
  • Barth said this is the "first time" he's seeing "sustained pressure" on emerging markets since 2002.

While some emerging currencies look attractive in the short term, emerging markets are fundamentally in structural decline with "broken" growth models, said Marvin Barth, the head of emerging markets macro strategy at Barclays on Tuesday.

Commenting on currencies such as the Indian rupee and Indonesian rupiah, which have recently plunged to record lows, Barth told CNBC at the Barclays Asia Forum in Singapore: "We think there are some opportunities to buy the dip in various places on a tactical basis."

"But we think that emerging markets are in structural decline … The key issue is, in the background, their growth models are broken," said Barth, who is also head of foreign exchange at Barclays.

He added that with advancing technology, it will be "hard for them to move up the value chain the way that other countries have done in the past." In addition to that, rising U.S. interest rates will continue to put pressure on emerging market assets.

Economies with more significant fiscal deficits and less credible monetary policies are going to come under renewed pressure, he said, adding that this is the "first time" he's seeing "sustained pressure" on emerging markets since 2002.

Still, some currencies such as the Brazilian real look attractive now, but Barth said he would not recommend the Turkish lira as it's "much too volatile."

The lira plunged last month and triggered fears that emerging markets contagion might spread. Analysts have attributed the stress on emerging markets to a strong dollar and rising oil prices.

The yuan is a "guessing game about what the Chinese policy-makers really want," he said while acknowledging that China will continue to take measures to support its economy's growth.

While a stronger greenback might have been one of the key factors contributing to the currency fallout, Barth — who was formerly an economist at the Federal Reserve Board — said the U.S. central bank only tends to react to what is happening in other countries when its economy is "teetering."

"But when the U.S. economy is doing fundamentally well, they have this direct policy to the U.S., and to U.S. inflation and growth goals," he said. The U.S. economy has been booming, with the recent release of strong economic data such as low unemployment rate and U.S. treasury yields hitting highs.