Will the Emerging-Market Equity Rally Resume?

02 May 2018

1 min read

Emerging Markets: Relative Performance Trends Tend to Persist for Several Years

Through April 30, 2018
Past performance and current analysis do not guarantee future results.
Developed-market equities represented by the MSCI World Index. Emerging markets represented by the MSCI Emerging Markets Index from its inception in January 1988 to the present. Prior to 1988 EM equities are represented by a 50/50 blend of the MSCI Hong Kong and MSCI Singapore indices.
Source: MSCI and AllianceBernstein (AB)

A Wall Street Journal (WSJ) blog on Wednesday warned that the emerging-market (EM) trade is under threat. But we think investors shouldn’t be swayed by short-term market moves. History shows that EM equity performance cycles typically unfold over several years.

After a two-year rally, EM stock returns slowed in early 2018. According to the WSJ, EM currencies, stocks and bonds have been under pressure recently due to “a sudden resurgence in the US dollar, rising expectations for US interest-rate increases and uncertainty over the path for global growth.”

We think the short-term reaction is overdone. In our view, developing economies are much more shock-resistant than they used to be, owing to improved trade balances and debt positions. What’s more, EM stocks are exposed to improving domestic macroeconomic conditions, strong secular growth drivers and broadening sources of earnings.

In the past, EM stocks have outperformed or underperformed developed-market stocks for relatively long multiyear cycles (Display). The last eight years of EM underperformance (which ended in 2016) were preceded by nearly nine years of outperformance.

Of course, historical performance trends don’t guarantee a repeat this time around. Yet EM stocks trade at a 23% discount to their developed-market peers based on price/forward earnings. So even though the road ahead might not be smooth, we think there’s a solid foundation to expect a continued recovery for EM stocks over time.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

This is a marketing communication. This information is provided by AllianceBernstein Schweiz AG, Zürich, a company registered in Switzerland under company number CHE-306.220.501. AllianceBernstein Schweiz AG is a financial service provider within the meaning of the Financial Services Act (FinSA) which is not subject to any prudential supervision in Switzerland. Further information on the company, its services and products, in accordance with Art. 8 FinSA can be found on the Important Disclosures page at www.alliancebernstein.com. It is provided for informational purposes only and does not constitute investment advice or an invitation to purchase any security or other investment nor is it a recommendation to subscribe to a financial service. The views and opinions expressed are based on our internal forecasts and should not be relied upon as an indication of future market performance. The value of an investment can go down as well as up and investors may not get back the full amount they invested. Capital is at risk. Past performance does not guarantee future results.

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