The recent outperformance by the EM MSCI has been remarkable since many emerging markets depend on exports to the Eurozone, which has been very weak, and to China, which has been slowing. In addition, in the past, the EM MSCI (in dollars) usually declined when commodity prices were falling and the dollar was strengthening. The EM MSCI has diverged from this pattern so far this year.
Perhaps a macroeconomic perspective isn’t as useful as in the past in gauging the likely performance of the EM MSCI. It may simply be that there are enough positive internal developments underway in enough of the emerging economies to drive the overall EM MSCI stock price index higher. There clearly are positive homegrown stories in India, Indonesia, Mexico, and a few other EMs that are attracting global investors. The stories tend to be about economic reforms that could spur more domestic growth.
An even simpler explanation for the outperformance of the EM MSCI is that it has been and still is relatively cheap compared to the other MSCI stock composites based on their forward P/Es at the end of August: US (16.0), EMU (13.7), Japan (13.7), UK (13.6), and EM (11.3).
Today's Morning Briefing: Ahead of the Pack. (1) US is ahead of the world benchmark this year and since the start of the bull market. (2) Faltering economies weighing on EMU and Japan MSCIs. (3) No sign of secular stagnation in US stock market performance. (4) Emerging Markets MSCI also outperforming this year despite weakening commodity prices and strengthening dollar. (5) Homegrown stories may be boosting EM stocks. (6) Or maybe they are just relatively cheap. (7) Forward earnings at record highs for 7 of 10 S&P 500 sectors. (8) Interest-rate-sensitive sectors underperforming again. (9) Energy has had a round trip this year in the performance derby. (10) Consumer Discretionary showing some life. (More for subscribers.)
Perhaps a macroeconomic perspective isn’t as useful as in the past in gauging the likely performance of the EM MSCI. It may simply be that there are enough positive internal developments underway in enough of the emerging economies to drive the overall EM MSCI stock price index higher. There clearly are positive homegrown stories in India, Indonesia, Mexico, and a few other EMs that are attracting global investors. The stories tend to be about economic reforms that could spur more domestic growth.
An even simpler explanation for the outperformance of the EM MSCI is that it has been and still is relatively cheap compared to the other MSCI stock composites based on their forward P/Es at the end of August: US (16.0), EMU (13.7), Japan (13.7), UK (13.6), and EM (11.3).
Today's Morning Briefing: Ahead of the Pack. (1) US is ahead of the world benchmark this year and since the start of the bull market. (2) Faltering economies weighing on EMU and Japan MSCIs. (3) No sign of secular stagnation in US stock market performance. (4) Emerging Markets MSCI also outperforming this year despite weakening commodity prices and strengthening dollar. (5) Homegrown stories may be boosting EM stocks. (6) Or maybe they are just relatively cheap. (7) Forward earnings at record highs for 7 of 10 S&P 500 sectors. (8) Interest-rate-sensitive sectors underperforming again. (9) Energy has had a round trip this year in the performance derby. (10) Consumer Discretionary showing some life. (More for subscribers.)
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