① Global Funds managers have recently stated that the ROI of Emerging Markets assets in the next year is expected to surpass similar assets in developed markets; ② According to survey estimates of industry Analyst, the MSCI Emerging Markets Stocks Index is expected to rise by about 15% in the next 12 months, while its developed market similar Index are expected to rise by only 10%.
Financial Services Association, August 25 (Editor: Xiaoxiang) Global Funds managers have recently stated that the ROI on assets in Emerging Markets in the coming year is expected to surpass similar assets in developed markets. Since US President Trump launched the tariff offensive in April, the performance of the two has almost “fought on a par”...
Institutions such as Fidelity International, T. Rowe Price, and Ninety One Plc pointed out that further policy relaxation by the Federal Reserve, the shift of investors to Emerging Markets, and implementation of more conservative fiscal policies by emerging market countries are expected to push emerging market assets out of relatively strong performance. Furthermore, the favorable inflation situation indicates that Emerging Markets will prosper.
According to a survey of industry Analyst, the MSCI Emerging Markets Stocks Index is expected to rise by about 15% over the next 12 months, while its developed market equivalent Index are expected to rise by only 10%.
The capital flow data tracking some of the world's largest ETFs also shows that the recent growth rate of capital Inflow Emerging Markets stocks is also higher than that of developed markets.
“Emerging Markets Stocks are expected to perform better because they benefit from loose local MMF policies in most markets — this has boosted domestic loans and consumption, while the weakening dollar has also played a driving role,” said George Efstathopoulos, Funds manager at Fidelity Investments Singapore. “Additionally, as the most important central bank, the Federal Reserve is likely to restart easing in the next few quarters.”
Emerging markets demonstrate their ability to “suck in gold”
Data shows that since Trump issued the “Liberation Day” tariff announcement on April 2, global capital flows seem to have favored Emerging Markets.
Since then, investors have injected approximately $5.8 billion into the world's largest Emerging Markets ETF, the iShares core MSCI emerging markets ETF, accounting for about 5.8% of the Funds's total assets. In contrast, another giant Funds, the Vanguard FTSE developed market ETF, received only $5.6 billion in capital Inflow, accounting for around 3.3% of its total assets.
Judging from market trends, since April 2, the MSCI Emerging Markets Index and similar indices for developed markets have both risen by about 14% due to market optimism that Trump's tariff threat is mainly a means of negotiation. Emerging market and developed market Bonds also performed roughly the same — the Bloomberg Emerging Markets Debt Index returned ROI, while a similar developed market debt index returned ROI.
Archie Hart, Ninety One's London-based emerging market Stocks Funds manager, said that one of the biggest reasons why Emerging Markets assets may outperform developed market assets in the future is their more orthodox and market-friendly fiscal policies.
“If we look at policy makers in emerging markets, they are currently conservative — subject to market discipline and pragmatic, so we don't see the huge and unsustainable fiscal deficits of developed markets,” he said.
Federal Reserve Chairman Powell hinted on Friday that the Federal Reserve may cut interest rates in September, which is also expected to further boost Emerging Markets assets. As his speech at the Jackson Hole Global Central Bank Annual Meeting caused a stir in the market, investors increased their bets on the Federal Reserve cutting interest rates at the September 16-17 meeting.
The appeal of valuation cannot be ignored
Furthermore, T. Rowe Price said that current valuations in emerging markets are more attractive.
“We are taking an overmatch position on Emerging Markets stocks in our multi-asset portfolio,” said Thomas Poullaouec, portfolio manager at the company's Singapore office, “because [Emerging Markets] are still more reasonable valuations than developed markets, and the prospects for profit growth are higher.”
Poullaouec also said that he is still Bullish the MMF of many developing countries, but they need to be carefully selected.
“Much of the room for growth in Emerging Markets MMF is reflected in prices, especially considering that short positions in the US dollar are too concentrated,” he said. “Nevertheless, we are still actively allocating Latin American MMF, particularly the Brazilian real, as they benefit from higher spreads and improved fiscal prospects.”
Since inflation is relatively moderately controlled, Emerging Markets Bonds are also seen as attractive.
The Citigroup Emerging Markets Inflation Surprise Index averaged negative 19 this year, below the peak of more than 40 in 2022. A similar Indicators for the G7 economies was negative 12 this year. Negative readings indicate that actual inflation data performed less than expected.
Fidelity's Efstathopoulos said, “There are still favorable factors that have driven the rise in local currency Bonds in Emerging Markets over the past year, such as falling inflation and largely unfeared fiscal deficits. In contrast, developed market Bonds still have to deal with rising debt levels and huge fiscal deficits.”
