The MSCI Emerging Markets Index rose as much as 0.7% Wednesday, putting it on course to close above the level of 1,023.74 set on the last trading day of 2023.
Emerging-market shares are poised to erase this year’s losses after their earlier slump wiped out more than $1 trillion of market capitalization.
The MSCI Emerging Markets Index rose as much as 0.7% Wednesday, putting it on course to close above the level of 1,023.74 set on the last trading day of 2023. Gains are being driven by technology shares and Indian large caps, while the single biggest contributor was Taiwan Semiconductor Manufacturing Co., which is on the verge of reclaiming a spot in the world’s 10 most valuable firms.
The recovery in developing-nation shares over the past month follows their worst start to a year since 2016 by the time of their mid-January low. While many of the concerns that drove that selloff remain — including a deflationary spiral in China and waning bets on Federal Reserve interest-rate cuts — they have been offset by a rush to buy shares linked to AI demand and confidence in India’s growth prospects.
“The January selloff pushed valuations in emerging markets to attractive levels, enticing bargain hunters,” said Manish Bhargava, a fund manager at Straits Investment Holdings in Singapore. Signs of recovery in China — a key driver of emerging-market growth — have also boosted investor confidence, he said.
Initiatives by Chinese officials, including a cut to banks’ reserve ratios and a reduction in loan prime rates, have helped stabilize market sentiment. Benchmark indexes of Chinese stocks are rising this month, but are yet to erase their 2024 losses.
Emerging-market equities have started outperforming the region’s fixed income in recent weeks after about a year of similar performance, due to improving earnings and an increase in the US yield, Goldman Sachs Group Inc. strategists including Caesar Maasry wrote in a note dated Feb. 20.
Earnings momentum in Asia excluding China markets “continues to be strong,” while the non-Asian EMs will continue to grow due to improvement in US economic data and the local economies, Kelly Chung, a multi-asset fund manager at Value Partners Hong Kong Ltd.
FAQs about Emerging Markets Recovery:
General:
- Is the emerging market rally sustainable? The rally is recent, and many concerns remain, so future performance is uncertain.
- What drove the earlier slump in emerging markets? Fears of deflation in China, rising US interest rates, and a global economic slowdown.
- What’s fueling the current recovery? Attractive valuations, signs of recovery in China, and strong earnings in Asia.
Investing:
- Are emerging markets a good investment now? They could be for investors seeking value and diversification, but risks remain.
- What are the main risks to consider? China’s economic slowdown, potential US rate hikes, and geopolitical tensions.
- What sectors are leading the rally? Technology (especially AI-related) and Indian large-cap stocks.
Specifics:
- Will the MSCI Emerging Markets Index close above 2023 levels? It’s possible, but the rally may not be sustained.
- How is China impacting the outlook? Signs of recovery there are boosting confidence, but challenges persist.
- What’s the outlook for emerging market bonds compared to stocks? Stocks may outperform due to improving earnings and rising US yields.
Additional:
- Where can I find more information on emerging markets? Financial news websites, investment research reports, and industry publications.
- Should I consult a financial advisor before investing in emerging markets? It’s recommended, especially for new investors.
Remember, these are just FAQs, and you should always conduct your own research and due diligence before making any investment decisions.
