We believe there are 10 factors supporting the rebalancing of investment portfolios to emerging market (EM) equities. Chief among them are: 1) the attractive valuations of EM stocks relative to other regions; 2) accelerating economic growth across EM nations; and 3) positive economic indicators in China.
1) Regional valuations: We find EM valuations—specifically in terms of price-to-sales (P/S) ratios—to be attractive relative to global and developed market valuations.
2) Economic growth: Accelerating EM growth will, in our view, support EM equity returns. Our heat map below shows the ongoing economic recovery across the developing world, led by countries such as China, India and Russia. Abundant shades of green are positive, signifying EM economies in various stages of expansion.
3) China: We think China is uniquely positioned to benefit from
positive cyclical and structural forces, namely:1) a final consumption-to-gross domestic product (GDP) ratio that’s above 50% and rising; 2) booming imports and domestic demand growth; 3) a service sector (52%) that has eclipsed manufacturing (40%) as a share of GDP; and 4) a budding recovery in business investment and capital expenditures.
For the full list of factors, please see our paper entitled, “10 Things You Should Know About Emerging Market Stocks.”
Additionally, watch Talley Léger’s interview with CNBC on emerging markets.
This material is for informational purposes only and is not intended to be investment advice, a recommendation, or to predict or depict the performance of any investment.