Displaying items by tag: emerging markets

Exchange-traded funds focusing on environmental, social and governance themes have been one of the fastest-growing market segments in a couple of years, but so far have yet to reach the acceleration in Asia as they have in the U.S. and EU, until now. The most recent data from the Asian Pacific has more than 1.5x as many funds starting in the first half of 2021 than all of 2020. The asset flows are even more staggering. Inflows since in the first half of 2021 are 10x larger than all of 2016, and they have almost already reached 2020’s $2bn. The standout countries are Australie, China, and Taiwan which comprise over 85% of all the ESG ETF assets. Moreover, these trends are expected to continue with more advantages on transparency and liquidity than other market segments.

FINSUM: These are astounding numbers for ESG growth, and faster-growing economies might not have the incoming restrictions to ESG the US could be facing.

Monetary policy is diverging in emerging markets with some countries keeping policy rates low and others beginning to tighten, and investors are beginning to make a ruling. Countries like Russia, Columbia and South Korea all experienced currency appreciation due to tighter policy, and certain investment classes are being rewarded. Bond markets are signaling a yield curve inversion in Russia, pricing in future rate hikes, but this has been okay for oil exports. While at the other end, Turkey saw its yield curve climb and its currency—the lira—perform poorly in October. There were mixed signals from Brazil, where the fiscal policy signaled lots of public spending. The monetary policy started to tighten to curb inflation, and as a result, markets punished the Brazilian real.

FINSUM: There are diverging schools of thought globally as to how to respond to the combination of the world’s energy crisis and the lingering Covid-19 pandemic.

(Rio de Janeiro)

The international monetary fund cut its growth projections globally this week. The advanced economies are still expected to keep pace, but the low-income developing countries are lagging. Many low-income countries are lagging in vaccine coverage and their exports are suffering because of this. These exports slowing led the IMF to cut the growth projection for Indonesia, Malaysia, Philippines, Thailand, and Vietnam from 4.3% to 2.9%. There is a slight trickle into larger economies as worker shortages have hurt American companies such as Nike. China remained robust to most of the slashes as its 2021 projection only dropped from 8.1% to 8.0%.

FINSUM: Don’t look for these growth projections to bear out in emerging markets if vaccine rates tick up. However, Fed tightening could slow growth in dollar-dependent countries.

Chinese regulators have come after everything from internet companies to education platforms, and this has left many investors skittish. Investors that would have maintained their convictions would have been well-suited, as since mid-August Chinese internet companies have bounced. Over this same time frame the MSCI Emerging Market Index, which holds a large share of Chinese companies, has doubled the return in the S&P 500. China’s focus on future regulation will better promote growth moving forward. The structure formed may benefit semiconductor companies, smart manufacturing, alternative energy, machine learning, cloud computing, autonomous vehicles, and other internet-related companies. Finally, Chinese companies have been quick to undue overwrought regulation and long-term regulation will be moderate.

FINSUM: Investors shouldn’t be too fickle with China, don’t spend too much time trying to nail regulatory swells, and embrace the long haul.

(Rio de Janeiro)

Emerging markets make up a fraction of US investors' portfolios even though they account for a quarter of global stocks weighted by market value, and they are one of the most important tools to beat the markets moving forward. The biggest factor driving the divergence in emerging markets and US markets has definitely been earnings, which has pushed the gap to its widest levels in the last two decades. However, earnings aren’t the only component of stock valuation. Dividend growth is expected to double up on US markets with 3% as compared to 1.4-1.5% in the U.S. Meanwhile, emerging markets are trading at a ridiculous discount as their P/E is about 12x where the S&P 500 is an average of 20. The common ratio of P/E to expected earnings growth and dividend yield favors emerging markets, which is already assuming high earning growth for US stocks. Finally the last time the gap between emerging markets and U.S. stocks was this bad the EM went on to beat the S&P by 14% over the next 7 years.

FINSUM: This is the perfect opportunity to move abroad because presently the discount is just unjustified for emerging markets.