Blog author Gavin Serkin is the Editorial Director for OnFrontiers and the Founder and Managing Editor of the Frontier Funds Consultancy.
By Gavin Serkin
In the midst of global political upheaval, the surprise verdict from the investment world is that emerging markets have rarely looked rosier.
Through Donald Trump’s first hundred days as US President and the beginnings of the European Union’s partial breakup, this year has seen emerging market stocks and local-currency bonds generating twice the gains of developed world peers, at 12 percent for equities and 7 percent for the debt.
As we enter unknown territory of global protectionism and security threats from North Korea to the Middle East, the markets’ enthusiasm shows no sign of waning. Investors and analysts from Goldman Sachs to BlackRock expect emerging market assets to continue outperforming developed world peers, led by Latin America and Asia, according to a Bloomberg survey last week.
Money is piling into exchange-traded funds, including over $7 billion of inflows to the iShares Core MSCI Emerging Markets ETF this year. Even Mexicans, who bore the brunt of Trump’s protectionist tirades, suddenly have reason to celebrate, with the peso on the verge of a bull market rally.
So, what’s behind the confidence? And is it misguided?
One investor who has punctured previous bouts of misplaced exuberance like few others is Ruchir Sharma. While China’s stock market was still soaring a couple of years ago as the nation dizzied investors with its contribution to 38 percent of world economic growth, Morgan Stanley’s head of emerging markets carried a PowerPoint presentation under his arm. It was titled “The Kiss of Debt.” Sharma showed me charts chronicling China’s unprecedented borrowing spree. No other country has withstood such an increase in debt without subsequently falling into severe recession, he warned.
Three months after we met in the first quarter of 2015, the Shanghai Composite Index plunged more than 30 percent in four weeks, wiping almost $4 trillion in market value. Morgan Stanley’s emerging markets funds were among the least exposed to China.
So, what does Sharma make of the current wave of optimism? That’s the first question I’ll be asking in our #ExpertChat online discussion, live from Morgan Stanley’s headquarters in New York.
Join us on Tuesday 2nd May, at 11:30am EST
ONFRONTIERS LIVE DISCUSSION
|Who?||Ruchir Sharma, Head of Emerging Markets & Chief Global Strategist at Morgan Stanley Investment Management|
|What?||Half-hour live discussion|
|Why?||Discover the outlook for emerging and frontier markets globally from the investor described on Barron’s front page as “Wall Street’s new global thinker”|
|When?||Tuesday 2nd May
11:30am-noon in NYC
4:30pm-5 in London