September market outlook: Emerging markets turnaround

Many developing markets look relatively cheap, considering favorable long-term growth outlooks.

  • Market Analysis
  • Stocks
  • Market Analysis
  • Stocks
  • Market Analysis
  • Stocks
  • Market Analysis
  • Stocks
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

With better than expected global data and an emerging market turnaround, Dirk Hofschire, senior vice president of asset allocation research, offers insight on what this may mean for investors in his monthly market catch-up with Lars Schuster, institutional portfolio manager for Strategic Advisers, Inc., a Fidelity Investments company.

Q: Let’s review the markets over the past month of August.

HOFSCHIRE: Although volatility has picked up somewhat in September, the overarching tone of the markets has been relatively positive. For one reason, we've had easier monetary conditions than many people expected as the U.K. moved to ease its policy further, and many central banks around the world are saying "lower for longer" with their interest rate policies.

The other thing that has happened is we've had some better global economic data, at least better than expected. And in this environment, despite recent volatility, equities have done reasonably well. Emerging market equities—those of developing economies—have actually outperformed and are doing pretty well year to date. It's a big turnaround from where they've been the past several years.

Q: What's been driving the emerging market turnaround over the last eight months?

HOFSCHIRE: To answer that question, I think you need to go back and think about why they’ve underperformed over the past few years coming in to 2016. So, looking back at the mid-2000s, we had a big global boom. It was really a trade, industrial, and commodity boom that was centered on very high growth in China. And it turned into a recession three or four years ago as China built up a lot of industrial excess capacity, and this hurt some of the other emerging markets, like South Korea and Taiwan, that depend on those exports.

You also had slower demand for commodities out of China that hit some of the countries you mentioned, like Brazil and Russia, that are commodity exporters. The worst of this trend, I believe, was back in 2015. In 2016, it has been more about China and the global economy stabilizing. So, even though we’re at a slower pace of growth today than we were a few years back, many emerging markets are now improving off of a very low base. And, in the near term, the markets care the most about whether conditions are getting better or getting worse, and now they are actually getting quite a bit better in a number of emerging economies.

Q: What does that mean for investment implications and your outlook?

HOFSCHIRE: Let’s shift back to the U.S. economy for a second. The U.S. economy is doing quite well. Labor markets are still tightening, the consumer is very positive, so there is no real risk in the near term, in my mind, of a recession on the horizon. But we are probably headed toward the late cycle at some point.

So from a U.S. standpoint, we’re still fairly constructive overall but we're thinking about it from an investment standpoint. It's not necessarily the time you take on a lot of extra risk. For emerging markets, late cycle in the U.S. is typically a time when the emerging markets do relatively well.

And over the longer term, it's also important to remember that many of these emerging markets have more favorable growth outlooks. Plus, relative to advanced economies, many actually have equity valuations that are less expensive than their developed-market counterparts today. So, overall, I think of emerging markets as an important component of a well-diversified global equity portfolio.

Learn more

  • Get a comprehensive view of your retirement plan with our Planning & Guidance Center, and explore changes that may help you become better prepared.
  • Research stock and bond mutual funds.
  • Research stock and bond ETFs.
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print
Investing involves risk, including risk of loss. Diversification does not ensure a profit or guarantee against loss.
Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, economic or other developments. These risks may be magnified in foreign markets.
Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Nothing in this content should be considered to be legal or tax advice and you are encouraged to consult your own lawyer, accountant, or other advisor before making any financial decision.

Past performance is no guarantee of future results.

Information presented herein is for discussion and illustrative purposes only and is not a recommendation or an offer or solicitation to buy or sell any securities. The views and opinions expressed by the Fidelity speaker are those of their own as of the date of the recording, and do not necessarily represent the views of Fidelity Investments or its affiliates. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views should not be relied on as investment advice, and because investment decisions are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity product. Neither Fidelity nor the Fidelity speaker can be held responsible for any direct or incidental loss incurred by applying any of the information offered. Please consult your tax or financial advisor for additional information concerning your specific situation.
Guidance provided by Fidelity through the Planning & Guidance Center is educational in nature, is not individualized, and is not intended to serve as the primary basis for your investment or tax-planning decisions.
IMPORTANT: The projections or other information generated by Fidelity’s Planning & Guidance Center Retirement Analysis regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Results may vary with each use and over time.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

770083.3.0
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.