The Empowering Ability to be Selective in Emerging Markets

With a recent webinar on China, an ETF.COM article titled “Global Investors Plan To Shun Emerging Markets” caught my eye.  The article, written by Rachael Ravesz, noted that 29% of the 4,208 investors surveyed by asset manager Legg Mason planned to move money from Emerging Markets into Developed Markets.  The article shared a few reasons why global investors may now be reassessing their views on Emerging Markets including poor performance of the EM benchmark, the impact of oil prices, and a strong US dollar.

It struck me as a very tactical choice to completely shun Emerging Markets.  Our recently published paper on the role that dividends play in Emerging Markets analyzed IMF data from 2014 estimating that Emerging Markets will account for more than half of the world’s GDP by 2019.  Measured by market cap, where Emerging Markets have nearly a 10% weight in our S&P Global BMI index, it still seems a large, negative bet to make.

But financial advisors who are tactical or opportunistic do not need to make an all-or-nothing choice when it comes to Emerging Markets exposure.  Indexing and Exchange Traded Funds measure and provide exposure to regional slices of Emerging Markets or country and sector-based exposures.  Sean Clark, Chief Investment Officer of Clark Capital Management, was a presenter on our recent webinar.  He and I had recently discussed that Clark Capital Management Group had a positive view on Asia Pacific as a region in Emerging Markets and a strong view on China in particular for the following three reasons:

  • Favorable equity valuation (P/E) of the China offshore equity market
  • Historic growth rate of the Chinese economy and expanding manufacturing and service PMI
  • 50 and 200-day moving average / relative strength look attractive to Clark Capital when compared to benchmarks

Sean noted during the webinar that the SPDR ETF tracking the S&P China BMI index had closed in trading up over 6% for the day.  Looking at the country, the region, and Emerging Markets as a benchmark, here is what yesterday and the year-to-date (YTD) looked like:

Index Total return for April 8, 2015 Total Return for YTD (as of April 8th)
S&P Emerging Market BMI 1.74% 6.87%
S&P Asia Pacific EM BMI 2.47% 9.93%
S&P China BMI 6.03% 15.49%

These data show just how empowering it can be to be selective in Emerging Markets.  Our webinar on China was recorded and slides are available for download if you missed it.

The posts on this blog are opinions, not advice. Please read our disclaimers.

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