Emerging Markets: Sailing

The wind is at our backs and all sails are stretching to their maximum capacity.

As the chart shows, emerging markets had a volatile quarter, but ended as being one of the best places to have money in stocks. For the year, EM was up by over 37%. It is about time. As our opening table shows, EM still holds last place for its performance over the last 10 years. While China was one of the best performers in 2017 (at +50.67%), Poland was higher (at 53.56%). In fact, of the 24 stock markets currently considered to be part of EM, 13 of them saw their markets grow by more than 30% in 2017.

This favorable wind can shift very quickly, though, and emerging markets comprises countries that have diverse economies in different points of their business cycles. For example:

  • Both Brazil and Russia are coming out of downturns and are in modest recoveries
  • South Korea and India have continued to grow at a healthy pace
  • While China has grown rapidly, it has many state-owned enterprises with debt issues that the government needs to clean up. While debt has grown rapidly in China, it is not to a danger point, but it is something that needs to be kept on any list of economic risks.
  • Upcoming elections in Brazil and Mexico could lead to instability.
  • Negotiations over Brexit and the North American Free Trade Agreement (NAFTA) could negatively impact emerging markets as would a slowdown in the developed countries.
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