Emerging Markets Look Good: An Update

 
We wrote last week on the potential for emerging markets to regain their mojo after years of relative underperformance.  During the week, positive data have continued to come in.  Some data points:

• South Koreans will go to the polls on May 9 in the wake of their president’s arrest and impeachment.  There is a feeling that the new government will need to implement pro-growth, reforming policies in order to restore public trust in the rule of law.  Candidates are proposing plans to expand the country’s high-tech manufacturing strength more deeply into artificial intelligence, robotics, biotechnology, and clean energy.

• With inflation modest and moderating, India will have room to stimulate the economy by cutting rates later in the year.  The country is also recovering well from the impact of Modi’s demonetization, with the Sales Managers’ Index rising robustly.

• Brazil’s CPI is also decelerating, down to 4.1% from 11% last year, also keeping the door open for stimulative policy from the central bank.  Inflation is contained across most of the EM, and Chile’s central bank cut rates unexpectedly.

• Early reports for emerging-market exports continue to show accelerating recovery in Brazil, China, Chile, South Korea, and Taiwan.  Exports from Thailand were up 9.2% year-on-year, and China’s and Indonesia’s trade activity showed sharp acceleration.  We notes some recent data which suggest a possible deceleration in Chinese GDP growth; we are watching carefully.

• The contribution to global growth of emerging markets other than China is set to exceed China’s contribution for the first time since 2011.  Growth is accelerating.

• In U.S. dollar terms, emerging-market bonds have recouped all of their post-election losses.

Investment implications:  We like emerging markets, especially after their long relative underperformance and in the context of an up-leg in global growth.  We find South Korea, India, and Indonesia particularly interesting.  Investors can find a wide variety of ETFs for emerging market economies and specific sectors and industries within them.