After a strong rally in March, emerging markets (EM) topped global index performance charts, gaining 5.7%, outperforming the MSCI World Index (-2.0%), the S&P 500 Index (+1.3%) and the MSCI EAFE Index (-2.9%). A rally in global commodity prices, along with dovish comments from the U.S. Federal Reserve (the Fed) over the trajectory of future interest rate rises and continued monetary easing by central banks in Europe and Japan reinvigorated investors' appetites for risky assets. The Q1 Emerging Markets Update reviews the drivers of EM performance and what investors should continue to watch in 2016.
Equities in emerging markets (EM) have now underperformed developed markets (DM) for the last 3 years. The International Monetary Fund (IMF) forecasts a renaissance in EM growth, which has historically proven key to EM equity performance. The Emerging Markets Update discusses what investors should watch for in 2016.
In a volatile third quarter for all markets, developed market equities (DM) outperformed emerging market (EM) and frontier market (FM) equities. Within EM, Hungary, Czech Republic, Qatar, and India outperformed, while commodity based markets and those entangled in political crises, such as Greece, Brazil, Indonesia, and Colombia were the worst performers. In the Q3 Emerging Markets Update, the EGA Investment strategy team shares their perspective on third quarter events and discusses what EM investors need to know.
India is expected to have the fastest growing gross domestic product (GDP) rate in emerging markets in 2015 and is expected to surpass China by 2016. The EGA Investment strategy team believes it is not too late to invest in India and highlights five key reasons why investors should allocate to this reforming and growing economy.
When approaching asset allocation, equity investors often follow a top-down, macro-economic approach to consider the merits of each country or region in their portfolio before considering the characteristics of individual securities. These allocations are generally made among the U.S., EAFE (Europe, Australasia and Far East), EM (Emerging Markets) and FM (Frontier Markets). We have noticed that many investors focus on riskiness or volatility of an asset class at the expense of the overall risk-adjusted returns or how different investments work together in a portfolio. The inclusion of EM and FM equities has reduced inter-asset correlation considerably and improved diversification. In fact, an allocation to EAFE provided no portfolio benefit-decreasing portfolio returns and increasing risk-while even a modest allocation to EM and FM increased overall portfolio risk-adjusted returns.
In a rollercoaster quarter, the MSCI Emerging Markets (EM) Index held on to slender gains outperforming both the S&P 500 (+0.3%) and the MSCI Frontier Markets (FM) Index (+0.1%). Inflows returned to EM equity ETFs as the U.S. Federal Reserve pushed back the timing of its first interest rate hike. In the Emerging Markets Update, the EGA Investment strategy team discusses the events in the second quarter and previews their thoughts on what's in store for 3Q15.