Features

Emerging markets bounce back after a miserable few months

Investors in emerging markets have been enjoying some long-awaited relief after a miserable few months.

Balinese women carrying offerings © Alamy

Indonesia's large domestic market provides shelter from global storms

Balinese women carrying offerings © Alamy

Investors in emerging markets have been enjoying some long-awaited relief after a miserable few months, says Robert Burgess on Bloomberg. The MSCI Emerging Markets index jumped by almost 2% on Wednesday last week, its biggest one-day gain since January. Perhaps some money managers "sense all the doom and gloom is overdone". The trade war and a strong US dollar have seen the index shed 8% since a high mid-April.

Sagging global trade is a big problem for many developing economies: they are highly geared to global growth. For example, exports represent 44% of South Korean GDP and 39% of Mexican output. Many firms borrow in dollars, but make sales in the local currency. Ongoing dollar strength means more hefty debt-servicing costs, says John Authers on Bloomberg. Emerging market currencies are also proving to be closely correlated to China's yuan. That leaves them at the mercy of trade-war negotiators and Chinese monetary decisions.

A chance to buy low

Another plus point is the superior growth performance of emerging nations. Expansion in emerging markets is the "linchpin holding up the global economy", former World Bank vice president Ian Goldin tells CNBC. Average growth of over 4.5% is "pulling up" more sluggish developed economies. "The centre of gravity is clearly moving to Asia."

Emerging market investors have endured a long period of disappointment, says Hube. The asset class has "been underperforming for almost a decade". Yet that is a reason for optimism, argues Donald. "If you look at history, you don't have constant underperformance. You have periods of underperformance followed by periods of outperformance." Such a shift could now be in the works.

Not all emerging markets are equally enticing, however. MoneyWeek prefers economies such as India, the Philippines and Indonesia, where large domestic markets provide shelter from global trade woes.

Recommended

3 emerging market dividend stocks to buy now
Share tips

3 emerging market dividend stocks to buy now

Professional investor Omar Negyal of the JPMorgan Global Emerging Markets Income Trust picks three of his favourite emerging market stocks for income …
4 Oct 2022
Three top-notch Asian stocks to buy
Share tips

Three top-notch Asian stocks to buy

Professional investors Adrian Lim and Pruksa Iamthongthong, managers of the Asia Dragon Trust, pick three of their favourite Asian stocks to buy now.
23 Sep 2022
Seoul attempts to close the “Korea discount” for stocks
Emerging markets

Seoul attempts to close the “Korea discount” for stocks

South Korean stocks suffer from the “Korea discount” – with the country still classified as an emerging market, investors are reluctant to pay a premi…
21 Sep 2022
India’s economy has come a long way in 75 years, but where next?
Emerging markets

India’s economy has come a long way in 75 years, but where next?

India has come a long way since independence to become the world's fifth-largest economy. But early mistakes and now a divisive leader are holding bac…
12 Sep 2022

Most Popular

Should you take a 25% tax-free pension lump sum in instalments?
Pensions

Should you take a 25% tax-free pension lump sum in instalments?

Taking out a 25% tax-free lump sum sounds appealing but it might not be the best way to manage your pension
30 Sep 2022
Mortgage early repayment charges: are they worth the cost?
Mortgages

Mortgage early repayment charges: are they worth the cost?

With interest rates set to rise further in the months ahead, is it worth swallowing early repayment charges to refinance your mortgage today?
4 Oct 2022
Why the Bank of England intervened in the bond market
Government bonds

Why the Bank of England intervened in the bond market

A sudden crisis for pension funds exposed to rapidly rising bond yields meant the Bank of England had to act. Cris Sholto Heaton looks at the lessons …
30 Sep 2022