Emerging market (EM) equities have been under pressure recently thanks to the combination of a stronger U.S. dollar, the ongoing U.S. and China trade dispute, concerns in Argentina, and now worries over the financial stability of Turkey.
Is Turkey the first domino to fall, and will a global crisis follow? Fortunately, we don’t feel that is the case at this time, as many of the Turkey issues have been self-inflicted.
As LPL’s Chart of the Day shows, EM markets have significantly underperformed the S&P 500 Index and MSCI EAFE Index this year, but since June, the underperformance has been even more pronounced.
“The Turkey situation is something we are watching closely, but with EM overall still seeing solid economic growth, strong demographics, and attractive valuations, we continue to suggest modest EM exposure for suitable investors looking to maintain a well-diversified portfolio,” says LPL Research Chief Investment Strategist John Lynch.
Be sure to read our Weekly Market Commentary, due out later today, in which we list seven reasons why you shouldn’t bail on EM.
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
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The MSCI EAFE Index is a capitalization-weighted index that tracks the total return of common stocks in 21 developed-market countries within Europe, Australia and the Far East.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
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