Emerging markets disappointed once again last year as growth crumbled and a persistently strong Dollar subdued sentiment. Those trends may be set to reverse in 2023, as the Dollar has fallen more than 10% from its 2022 peak and the IMF expects EM growth has already bottomed out. Emerging market equities have started the year strong, outperforming the S&P 500 YTD, while EM bond funds has also been on the rise.
Related ETFs: iShares MSCI Emerging Markets ETF (EEM), JPMorgan Emerging Markets Debt Fund (JEMDX)
Emerging markets equities have started the year off more strongly than US benchmarks like the S&P 500, prompting calls for a resurgence in an asset class that has essentially gone nowhere for more than a decade. The iShares MSCI Emerging Markets ETF (EEM), for instance, has fallen -4.2% since the start of 2010. By comparison, the S&P 500 has risen 250.8% over the same period. In the year to date period, however, EEM is up 8.2% versus a 6.7% gain in the S&P 500.
Many analysts had high hopes for emerging markets at the start of 2022, as institutions like JPMorgan were forecasting emerging market equities would return 18% throughout the year. When all was said and done for 2022, however, emerging market ETFs like EEM had fallen by -22.0%. Granted, broader indices did not fare much better last year as equities across the board sold off, but it has been an especially long time since emerging markets as a whole have really impressed.
If sentiment is set to improve, however, pricing of EM equities could be advantageous. A Lazard analysis, cited by Investors’ Chronicle, shows emerging markets have been trading at a -35% discount to developed markets on price/earnings (P/E) terms and at a -44% discount on a price-to-book basis.
Certainly, there are some positive signs kicking off this recent rally. Reuters reports investors poured a record $12.7 billion into emerging-market debt and equity funds in the week to January 20, largely spurred on by…
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