Putting the EM Decline in Perspective
It has been a difficult year for emerging market (EM) equities, with the benchmark MSCI Emerging Markets Index down significantly for the year after posting a 37% return in 2017. To provide some perspective on developments in EM, Justin Leverenz, Portfolio Manager of Oppenheimer Developing Markets Fund, joined a Barron’s roundtable with several of his industry peers.

The decline in EM, Justin notes, can be attributed to a number of factors, including rising U.S. interest rates bringing capital back to the United States and the slowing Chinese economy.

But he is still positive on the long-term outlook for emerging market equities. He believes China will capitalize on its many strengths, including a significant pool of intellectual talent. As he says, 20% to 30% of the incoming undergraduates at top U.S. schools are Chinese, and they represent about half of the students in U.S. graduate schools in life sciences, physics, and math.

The panel agreed that the global battle to take the lead in artificial intelligence will be critical in the years ahead, as important as the space race was in the 1950s and 1960s and Justin believes that China will prove to be a formidable competitor.

He believes that across the emerging markets, there are still many well-run companies, such as Novatek, Russia’s largest independent natural gas producer, that can offer investors significant growth opportunities.

In a sidebar article, Barron’s asked the panelists for their views on China’s Internet giants, which have all sold off sharply this year. Justin believes Alibaba still has major advantages given that it owns 80% of the world’s largest e-commerce market.

Read the full roundtable discussion with additional insights on China’s Internet companies.

As of 9/30/18, Alibaba Group Holding represented 5.6% of Oppenheimer Developing Markets Fund’s assets; Novatek OAO, 4.5%. It should not be assumed that an investment in the securities identified was or will be profitable.