Emerging Markets: Bulls are Back
The stock market has been a roller coaster ride in 2020 and 2021, with the pandemic causing a huge drop in the markets and then a subsequent recovery. Now, in 2023, the bulls are back in emerging markets, with growth stocks outperforming.
Growth Stocks Outperforming
Growth stocks have been outperforming value stocks in the emerging markets, with the MSCI Emerging Markets Growth Index up by 8.3% this year, while the MSCI Emerging Markets Value Index is up by only 4.3%. This is a reversal of the trend seen in 2020 and 2021, when value stocks outperformed growth stocks.
The growth stocks that have been outperforming include technology, consumer discretionary, and healthcare stocks. Technology stocks have been particularly strong, with the MSCI Emerging Markets Technology Index up by 13.3% this year.
Rising Optimism
The rising optimism in the emerging markets is being driven by a number of factors. One of the main drivers is the expectation of a global economic recovery in the coming years. This is being driven by the rollout of vaccines in many countries, which is expected to lead to a rebound in economic activity.
The other factor driving the optimism is the expectation of higher corporate earnings in the coming years. This is being driven by the expectation of higher demand for goods and services, as well as the expectation of higher prices for commodities.
Risks Remain
Despite the optimism in the emerging markets, there are still risks that investors need to be aware of. One of the main risks is the potential for a resurgence of the pandemic, which could lead to a renewed economic slowdown.
Another risk is the potential for higher inflation, which could lead to higher interest rates and a tightening of monetary policy. This could lead to a slowdown in economic activity and a decline in corporate earnings.
Finally, there is the risk of political instability in some of the emerging markets, which could lead to a decline in investor confidence.
Conclusion
The bulls are back in the emerging markets, with growth stocks outperforming value stocks. This is being driven by the expectation of a global economic recovery and higher corporate earnings in the coming years. However, there are still risks that investors need to be aware of, including the potential for a resurgence of the pandemic, higher inflation, and political instability.