Emerging market stock indices have underperformed the broad equity rally this year. They’ve lagged behind not only American, Japanese and continental European equities, but even UK stocks. In sterling terms they’ve barely broken even.
With the Federal Reserve signalling that it is probably done in raising interest rates, and the bond market pricing in a series of cuts next year, it feels right to ask whether it’s time for emerging markets to play catch-up.
Lumping together firms listed across such a disparate collection of geographies can look lazy at best. Emerging nation equity markets vary in their politics, economic challenges and institutional arrangements. Turkey is a long way from Taiwan in many ways. Collectively, they tend to do well when the US dollar is weakening, the global rates outlook is benign, the world economy is growing briskly and international trade volumes are increasing. But what unites them beyond MSCI index taxonomy is the importance of country-level macro risk factors to their performance.