Emerging markets on a roll

While most global equity markets have done well in 2017, emerging markets (EMs) have decisively outperformed.  On a year-to-date basis, the MSCI EM index, a gauge for the performance of 24 developing nations, is up 23.3 per cent, against 10.6 per cent gain in the MSCI World, an index dominated by the developed markets. 

EMs’ performance comes after years of underperformance against the developed markets. Between 2013 and 2015, the MSCI World gained 24 per cent, while the EM was down 26 per cent. Both gauges ended 2016 with single-digit gain. 

Experts say EMs have done well on the back of improved risk sentiment, amid dovish stances by global central banks. About $60 billion have flown into most major EMs this year, fuelling gains in their stock prices and currency. Within EMs, India has been a standout performer, with dollar gains of 25 per cent this year. Some experts believe developing nations could offer further upside in the next few years. “While areas of risk remain, our view is that we are still in the early innings of EM earnings growth upturn. We also believe valuations and sentiment continue to be supportive,“ said Mark Mobius, executive chairman, Templeton Emerging Markets Group, in a note earlier this month. Adding: “Taking a long-term view the structural investment case for EMs continues to centre around demographics, including a rising middle class, and domestic consumption. We think it’s also important to recognise there have also been fundamental shifts in the corporate landscape.“