After plowing billions into emerging market equities since October, investors have started to show signs of hesitation, but an uptick in earnings expectations should reassure those hoping to capitalize on stronger economic growth in the emerging world.
The relative health of emerging companies’ earnings compared to the rest of the world is a central draw. Analysts have increased their expectations for EM earnings growth this month while forecasts slide everywhere else.The inclusion of China’s domestic A-Shares into MSCI’s emerging markets index has also been a game-changer, making it far easier for international investors to access Chinese stocks.
“No-one is breaking out the champagne on this. We’re just hoping we get a decent year, and arguing that U.S. valuations versus EM are quite stretched,” said Charles Robertson, global chief economist at Renaissance Capital. “Because they’re seeing macro getting better, trade getting better, China doing the right things, as long as they can see that forward progress they can feel that some level of past disappointment can be just that - in the past,” said Andrew Jones, emerging markets equity portfolio manager at Pinebridge Investments in New York.The BAML survey could be a bad omen for emerging markets. Previous “crowded trades” include bitcoin and the FAANGs, which went on to slide significantly.
Some, like Peter Elam Hakansson, chairman and CIO at East Capital in Stockholm, are homing in on specific countries where they see particularly strong earnings growth.“Some of the most interesting developments will be in Brazil and Russia where you had some very nice earnings growth but the market is not really appreciating it,” said Hakansson.
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