Emerging market equities have enjoyed strong performance in 2016 after struggling for three straight years. Three developments have boosted results.
China – Chinese manufacturing has expanded in 2016 after falling in 2015. It has been a rocky transition for the country from an export-led industrial economy to one led by consumer spending and services. Capital Group estimates that in 2015, services finally overtook industry as the largest contributor to growth. China is benefiting from stimulus measures enacted last year, as well.
Commodities – Many emerging markets rely on commodity exports, and the collapse of commodity prices from 2013 to 2015 weighed on economic growth. This was especially true for Latin America. Rebounding oil prices have contributed to a 70% bounce in Brazilian stocks in 2016 following a 78% decline since 2011.
Central Banks – Central banks around the globe, including the Federal Reserve, are now less eager to raise interest rates. In 2015, concerns over repeated Fed rate hikes caused investors to fear that global capital would be diverted away from emerging markets toward the U.S. Despite the rebound, emerging markets continue to offer good long-term value, in our opinion. These markets trade at wide valuation discounts to the U.S. and prices remain far below the levels of the 2007 market peak. As a result, an allocation to emerging markets remains desirable for the growth-oriented portion of most portfolios.
This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.