“Emerging market equities have underperformed developed market equities by more than 50% over the last five years in US dollar terms,” Fu said. “Negative EM sentiment has been driven by China’s economic slowdown; the end of the commodity-super cycle hurting EM exporters’ growth; and political uncertainties across a number of larger markets, including Brazil, Turkey, Russia and, more recently, China.”
“The fundamentals for many EM countries remain challenged and it will take several years to address a range of structural political and economic weaknesses,” Fu continued. “In addition, subdued global growth and monetary policy uncertainty in the developed world are unlikely to diminish in the short-term, acting as headwinds to EM equities. Over the long term, however, we continue to believe that the investment case for EM remains attractive and given current valuations, there are now reasons to turn more positive on this asset class than has been the case in the past couple of years.”
While it is fair to say it would only take something like another major wobble in China or a fresh slide in the oil price back towards $30 to pull the rug from under the feet of this burgeoning recovery, it should at the very least give return hungry investors something to think about.
