Expect GDP Growth to Help Emerging Market Stocks Reverse Recent Weakness

Solid economic growth should be good news for emerging market (EM) stocks, which have historically done well when economic growth in EM has accelerated relative to that of developed economies. Economic growth in emerging economies is looking up.

According to LPL Research Chief Investment Strategist John Lynch, “We see advantageous demographics, early-cycle acceleration, and commodities gains all helping offset slowing but stable growth in China, resulting in solid economic growth for emerging economies in 2018.”

Digging deeper, when the gross domestic product (GDP) growth differential between emerging and developed economies has widened, the MSCI Emerging Markets Index has tended to outperform the S&P 500 Index, as our LPL Chart of the Day shows. EM GDP is expected to grow 5% in 2018, compared with 2.4% in developed markets, for a differential of 2.6%. In 2019, that differential is expected to widen to near 3% GDP expectations are based on Bloomberg consensus forecasts.

In this week’s Weekly Market Commentary, due out later today, we discuss the impact of economic growth on EM and highlight five keys to our EM outlook.

 

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

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Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

International and emerging markets investing involves special risks, such as currency fluctuation and political instability, and may not be suitable for all investors.

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 MSCI Emerging Markets Index consists of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt,
Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South
Africa, Taiwan, Thailand, and Turkey.

The S&P 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.

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