December 19, 2019
The outlook has brightened for stocks in emerging markets. A key reason is the trade agreement the United States reached with China last week, even if it’s only phase one. We acknowledge tensions could escalate again as negotiations move to the next phase, but this is still a clear positive any way you slice it. The de-escalation in trade tensions can help support the economic growth outlooks for emerging-market countries, particularly China and its key Asia trading partners.
Another reason we believe the outlook is looking better is the recent under-the-radar increase in emerging-market earnings estimates. As shown in today’s LPL Chart of the Day, consensus earnings estimates for the next 12 months for the MSCI EM Index have risen by 2.3% over the past three months, while S&P 500 Index estimates haven’t budged, and MSCI EAFE estimates have fallen by 1% (source: FactSet).
“Assuming the trade truce holds—and we suspect it will—we see potential for solid gains for emerging markets stocks in 2020,” said LPL Financial Chief Investment Strategist John Lynch. “A possible double-digit increase in emerging-markets earnings could be attractive to global investors, a scenario that may be more likely following the U.S.-China trade deal.”
Emerging-markets earnings have struggled to keep pace with U.S. earnings in recent years, but we may see the tide turn next year. We continue to favor emerging market equities over those in international developed markets, and we continue to believe a modest allocation to emerging markets equity makes sense in appropriate strategies. The recent uptick in estimates is encouraging as it corroborates the impact of the trade pact and recent evidence of stabilizing growth in recent global economic data.
For more of our investment insights on international and emerging-market equity markets, check out our Outlook 2020: Bringing Markets Into Focus.
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.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
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.
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.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (Member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL is not an affiliate of and makes no representation with respect to such entity.
If your advisor is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL may also be employees of the bank/credit union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union. Securities and insurance offered through LPL or its affiliates are:
|Not insured by FDIC or NCUA/NCUSIF or Any Other Government Agency | Not Bank/Credit Union Guarantee | Not Bank/Credit Union Deposits or Obligations| May Lose Value|
For Public Use | Tracking #1-929710