2017 Emerging Markets Outlook

Friday, March 10, 2017

The past 12 months have been fairly turbulent in emerging markets, but year to date, emerging markets have considerably outperformed developed markets.

A number of factors support positive emerging market performance:

  • Valuations are attractive.
  • Corporate earnings have improved, and are off to their best start in six years.
  • External imbalances are better than they were in previous periods of stress.
  • The Chinese macro environment has stabilized as a result of early-2016 stimulus.
  • Commodity prices are more supportive than they have been.
  • Stronger growth in developed markets should benefit export-driven emerging markets.
  • We are seeing tremendous secular growth in key investment themes, including emerging market consumption and financial inclusion.

However, a few key risks could cause significant headwinds:

  • The U.S. dollar could remain strong and U.S. interest rates are likely to rise. However, recent weakness in the U.S. dollar is encouraging.
  • Global trade could decline amid increased protectionist measures. Unfortunately, we have little visibility on this front.
  • Chinese foreign exchange, debt overhang, and overcapacity risks are concerning, and they will eventually need to be addressed.
  • India’s demonetization could have a lingering affect. However, it has not been as bad as expected, and Indian corporate results for the past quarter have been better than average.

On balance, our outlook for emerging markets in 2017 is optimistic, and we are off to a good start. Todd McClone, CFA, partner, delves into some of the details behind our outlook.

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