Emerging Markets: The Mod Markets

Emerging markets enjoyed another good quarter, with the MSCI index up almost 8%, bringing its year-to-date growth to almost 28%. A number of factors contributed to this strong rise:

  • The best performing emerging country this year has been Poland, followed by China. Each of their markets has been up over 40% so far this year. Reasons cited are usually surprises in economic growth rates or, in China’s case, increasing exports.
  • India is benefiting from lower commodity prices which in turn have lowered domestic inflation. Steady growth is forecast for India by the International Monetary Fund since switching its cash to battle corruption is now completed.
  • Russia appears to be coming out of its two-year recession and has increased demand for its goods and commodities, both internally and for its exports.
  • Despite Brazil’s ongoing corruption, its economy is coming out of recession because of strong export growth and benign inflation. Brazil’s stock market was the best performer in Q3, up almost 24%.

As we’ve seen, emerging market stocks are typically more volatile than others. We always like volatility when it involves positive returns and it always concerns us when returns are volatile and negative. This year is proving the advantage of sticking with a volatile investment through bad times.