Emerging markets struggled last year, given slowing global growth, tighter Fed policy, a stronger U.S. dollar and escalating trade war. But change is afoot—as suggested by a patient and even dovish Fed, a stable dollar and progress toward resolution of trade differences. That and attractive emerging markets equities valuations are attracting investors.
The 2018 correction, which lasted from January to October, is over, and EM is rebounding. And so, we revisit a chart that has proven itself several times before: after each major (25% or more) drawdown in emerging markets, that major drawdown was followed by a significant rally over the next three to 18 months. Download a PDF here.
At the three-month mark, the current recovery has produced a 10.65% return, as shown above. Time will tell whether we are heading toward a sustained rally as seen previously.
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The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.
As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.
Foreign Securities Risk: Risks associated with investing in foreign securities include fluctuations in the exchange rates of foreign currencies that may affect the U.S. dollar value of a security, the possibility of substantial price volatility as a result of political and economic instability in the foreign country, less public information about issuers of securities, different securities regulation, different accounting, auditing and financial reporting standards and less liquidity than in U.S. markets.
Emerging Markets Risk: Emerging market countries may have relatively unstable governments and economies based on only a few industries, which may cause greater instability. The value of emerging market securities will likely be particularly sensitive to changes in the economies of such countries. These countries are also more likely to experience higher levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets.
The MSCI Emerging Markets Index represents large and mid-cap companies in emerging markets countries. Unmanaged index returns assume reinvestment of any and all distributions and, unlike fund returns, do not reflect fees, expenses or sales charges. Investors cannot invest directly in an index.