Emerging Markets: Early Innings or Late in the Game?

It has been a great year so far for Emerging Markets (EM), with the MSCI Emerging Markets Index up nearly 19%, approximately doubling the returns of the S&P 500 Index. Here’s the catch: For years now we’ve seen some big bounces in EM, but in the end the rallies disintegrate and those expecting a major change in trend are left battered and disappointed. The good news is this rally looks like it could just be getting started.

Per Ryan Detrick, Senior Market Strategist, “Emerging markets have benefitted year to date from the surprise U.S. Dollar weakness, very strong earnings, and modest valuations. But investors want to know if this rally is still in the early innings or closer to the ninth. One major positive suggesting it’s early in the game is that the MSCI Emerging Markets Index is in the process of breaking out of a bearish trendline going back nearly 10 years, suggesting a major change in trend is taking place and EM could score more runs.”

EM is a group we have liked for over a year now, and we continue to think it may be a good place for potential alpha in a well-diversified portfolio. It won’t be a smooth ride (EM rarely is), but as we discussed in our Midyear Outlook 2017, this is an area that should continue to outscore the other teams (i.e. asset classes) over the balance of this year and maybe even longer than that.

Source: LPL Research

 

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The economic forecasts set forth in the presentation may not develop as predicted.
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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.
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