Emerging markets are having a party this year, and Vietnam has finally been invited.
Upon the news that the south east Asian nation has been promoted from frontier to emerging market status, we thought the asset class was worth taking another look at.
Broadly, when we talk about emerging markets at the index level, we mean the fates of China, Taiwan, India and South Korea, which comprise the lion’s share of the capitalisation-weighted benchmark.
The MSCI Emerging Markets index has done almost 20 per cent year-to-date, outpacing the index returns of the UK, Europe and the S&P 500 (for sterling investors, at least), a return bettered only by such barbarous relics as gold and silver.
Our readers will probably be aware that the dollar index — which measures the performance of America’s currency against a basket of peers — has fallen about 10 per cent year-to-date, which tends to spell good news for emerging markets.
Where are the opportunities in emerging markets?
Not only that, but falling US interest rates have pushed investors further towards the higher yields of emerging markets.
“It would appear that given US rates are likely to fall even further and the dollar could still be overvalued, emerging markets could be in for a more sustainable period of strong performance than any time over the past few years,” said Freddie Gabbertas, investment manager at Arbuthnot Latham.
He warned that the era of largely unfettered trade globalisation (which helped fuel the rise of emerging markets) looks to be over, and that ongoing uncertainty around global trade dynamics and geopolitics could provide a ceiling on valuations in the medium-term.
US-China bickering that rattled investors’ nerves over the weekend is a timely example.
Arbuthnot uses Redwheel Global Emerging Markets alongside a Robeco index-plus tracker to access the region.