From 2011 to 2015, emerging market equities experienced five years of significant underperformance, broadly characterized by U.S. dollar strength and weak commodity prices.
But 2016 saw a reversal of that trend and gave rise to their outperformance. Since the beginning of that year, we’ve seen economies bottoming; a reduction in balance-of-payments risk; broad strengthening of emerging-market currencies; a rebalancing of Chinese economic growth; and stabilization in commodity prices.1
And the positive trend is continuing in 2017. The MSCI Emerging Markets Index was up 20.1%. Comparatively, U.S. equities were up 14.4% and developed market international equities were up only 9.7%.2
Now, more investors appear to be viewing emerging market equities’ woes as yesterday’s news. Emerging markets have been a significant driver of global growth and we believe this trend will continue:
- Emerging markets and global growth: 70% of the world’s gross domestic product (GDP) growth over the next 5 years is expected to come from EM countries.3
- Urbanization: Increasing urbanization is facilitating growth in personal wealth and consumption.
- Demographics: Favorable demographics such as age, education and income have also been key drivers of growth and consumption.
We believe that several market sectors will benefit from these trends, including healthcare, education, leisure, e-commerce and technology.
In summary, we believe these are the reasons why emerging markets will remain a long-term opportunity for investors.
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The MSCI Emerging Markets Index is designed to measure equity market performance of emerging markets. The index is unmanaged, includes the reinvestment of dividends and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict performance of the Fund. Past performance does not guarantee future results.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Emerging and developing market investments may be especially volatile.
The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.