We noted our favorable view of emerging markets (EM) equities in our Midyear Outlook publication, and we continue to like the space despite the MSCI Emerging Market Index’s significant outperformance versus the S&P 500 Index year to date; besting it by roughly 15% over that span. But we’ve seen bounces in EM over the past few years, yet none have lasted. So you might ask: Why is this time different?
Per Ryan Detrick, Senior Market Strategist, “What makes the recent strength in emerging markets encouraging is that we’ve also seen a big pick-up in corporate earnings, and valuations are still modest relative to the rest of the world. Not to mention—the MSCI Emerging Markets Index has clearly broken out of a 10-year downtrend, which is yet another sign that the EM strength is real and could continue.”
EM’s outperformance relative to the S&P 500 is actually another reason the space looks good on the technical front. After lagging for many years, there has been a significant breakout to two-year highs in the MSCI Emerging Markets Index relative to the S&P 500. This is yet another indicator that the EM strength could be legitimate and should continue to be a place to find potential alpha in well-diversified portfolios.
The economic forecasts set forth in the presentation may not develop as predicted.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.
Stock investing involves risk including loss of principal.
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Alpha: Measures the difference between a portfolio’s actual returns and its expected performance, given its level of risk as measured by Beta. A positive (negative) Alpha indicates the portfolio has performed better (worse) than its Beta would predict.
This research material has been prepared by LPL Financial LLC.