Recently emerging markets have been gaining a lot of traction from fund houses, which is no coincidences, as it is backed by good fundamentals. Despite worries on Trump administration affecting the growth of the emerging markets economies, the MSCI Emerging Markets Index have clocked more than 7% growth in 2017 year to date.
4 reasons why I am positive,
- Attractive Valuation
With developed markets such as US running up to higher valuation, emerging markets equities at P/E ratio of 12 provide a comparatively more attractive valuation. - Stronger growth potential over developed markets
Economic growth is expected to rise with interest rates cut in a low interest rate environment. Coupled with an attractive valuation, it is likely to offer a higher capital gain. - Political reform
A huge risk in the emerging market space is usually political instability, which will hinder developments. Emerging economies are proactively implementing interest rates cut, or other policy easing measures, with an objective to spur growth. Notably, China, Russia, Turkey, and Indonesia are improving. India has also been cracking down on illegal money flow by removing the circulation of large denomination bank notes. There is a strong focus on infrastructure growth for India, and the country is also opening up for foreign direct investment. - Rising commodities prices
Oil price is stabilised above US$50 per barrel, and commodities market is also likely to be stabilising in 2017, reversing the bears in 2016. During the oil bear market, many policies were formulated to ease the impact on the economy. With the recovery of oil price, the policies still exist, and plays a pivotal role in adjusting the economies to the new equilibrium. Russia and Brazil are major producers that benefitted. Stabilisation of commodity prices has also helped reignite investors faith in emerging market with the improvement in the economic conditions in these countries.
Do feel free to contact me to exchange ideas. I am sure the investment journey is not easy, and it would be good to have another opinion as a reference.
Disclaimer: Views are strictly of my own, and do not constitute an offer to purchase. I am vested given that I believe in the growth story. Do exercise your due diligence.