Is it worth it to invest in emerging markets?
When basic caution is exercised, the rewards of investing in an emerging market can outweigh the risks. Despite their volatility, the most growth and the highest-returning stocks are going to be found in the fastest-growing economies.
A weaker dollar has historically been a positive for emerging markets, boosting returns of U.S. investors as they repatriate their profit, and reducing borrowing costs for countries with dollar-denominated debt. These countries are heading into a favorable rate backdrop in an already strong position.
Vanguard's active fixed income team believes emerging markets (EM) bonds could outperform much of the rest of the fixed income market in 2024 because of the likelihood of declining global interest rates, the current yield premium over U.S. investment-grade bonds, and a longer duration profile than U.S. high yield.
Thailand is one of the most popular emerging markets for investors. Others include China, India and Brazil. The last decade has seen U.S. markets dominate the investment landscape, but this trend of outperformance is not a constant.
EM equities have only outperformed the S&P two times over the past ten years. Following a decade of U.S. exceptionalism, emerging markets now offer outsized growth potential at discounted valuations.
Fitch Ratings-London-05 February 2024: Higher growth in emerging markets (EM) relative to developed markets and the prospect of US Federal Reserve rate cuts later this year are expected to push emerging-market net capital flows to a decade high in 2024, says Fitch Ratings in its latest Economics Dashboard.
In short, a review of the three standard approaches to EM allocation suggest global equity investors should allocate somewhere in the range of 13% to 39% to EM. Source: FactSet, MSCI, MSIM calculations.
- Amazon. Amazon (NASDAQ: AMZN) is a the ideal growth stock because it's a leader in two high-growth markets: e-commerce and cloud computing. ...
- Carnival. ...
- Apple.
- International-equity opportunities.
- The healthcare, financial-services (namely banks), and utilities sectors.
- Small-cap and value stocks.
- Second-derivative AI stocks.
- Positive real yields in fixed income.
- Treasuries over corporates.
Emerging markets are generally less liquid than those found in developed economies. This market imperfection results in higher broker fees and an increased level of price uncertainty.
What are the 5 biggest emerging markets?
The Five Major Emerging Markets. Brazil, Russia, India, China, and South Africa are the biggest emerging markets in the world.
Earnings growth in the EM region is expected to reach 18% in 2024. China's economic outlook remains challenging. While a swift rebound in growth is not likely, clear signs of a bottoming in growth will be welcomed.
Compared to recent experience, EM economic and earnings growth is expected to outperform this year by wider-than-normal margins. But given the above discussion, we see risks to these estimates as skewed to the downside. Taken together, we don't think Fed rate cuts are a panacea for EM equities.
| Year | Return |
|---|---|
| 2022 | -14.77% |
| 2021 | 5.93% |
| 2020 | 8.66% |
| 2019 | 21.17% |
| Year | Return |
|---|---|
| 2021 | 8.41% |
| 2020 | 8.74% |
| 2019 | 20.37% |
| 2018 | -10.66% |
While many parts of EM equity remain markedly under-owned despite their low cost, we expect earnings growth to be higher in EM in 2024 compared to the developed world, driven to great extent by emerging Asia and information technology companies.
The U.S. economy avoided the recession forecast for 2023. Experts now say a soft landing or mild recession is possible in 2024.
Despite the historically compelling performance, investors remain underweight emerging markets today and have continued to lighten their position in 2023. We think it's time to take a fresh look at your emerging markets allocation.
The U.S. exceptionalism is set to fade in 2024. We expect monetary policy to become increasingly restrictive as inflation falls and offsetting forces wane. The economy will experience a mild downturn as a result. This is necessary to finish the job of returning inflation to target.
A declining dollar
If a US recession is on the way would only make more of a case for greater diversification in global portfolios – a positive for emerging markets. A recession would entail lower inflation and, as a result, lower US interest rates.
Why are emerging markets attractive to investors?
Investors seek out emerging markets for the prospect of high returns because these markets often experience faster economic growth as measured by gross domestic product (GDP).
The old rule about the best portfolio balance by age is that you should hold the percentage of stocks in your portfolio that is equal to 100 minus your age. So a 30-year-old investor should hold 70% of their portfolio in stocks. This should change as the investor gets older.
Wayfair Inc. (NYSE:W), Match Group, Inc. (NASDAQ:MTCH), and Palantir Technologies Inc. (NYSE:PLTR) are some of the stocks that will double in 2024, besides StoneCo Ltd.
Amazon's analyst rating consensus is a Strong Buy. This is based on the ratings of 41 Wall Streets Analysts.
- Technology and innovation. ...
- Renewable energy. ...
- E-commerce and digital economy. ...
- Healthcare and pharmaceuticals. ...
- Infrastructure development. ...
- Electric vehicles (EVs) and clean transportation. ...
- Financial services and fintech.
