Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
It is no secret that Emerging Markets have taken a beating in recent months, and a quick scan of recent headlines in the Financial Times - arguably the least hysterical of our national broadsheets - shows that the adjectives being used to describe the situation in emerging markets are increasingly creative; 'rout', 'crisis', 'turmoil', 'catharsis', 'basket case' and, most mysteriously, 'whack-a-mole' amongst them.
They've had a tough time, and anyone with exposure to the region will be aware that this negative newsflow is not entirely unwarranted. Indeed, so far in 2018 the emerging markets index as a whole is down 5.14% in GBP terms, and active managers have on average done worse than their more passive peers; adding salt to the wounds of those who would defend the active approach.
China's major weighting in the index as a whole, and the bombast around the prospect of a trade war between China and the United States, has had a profound effect across the sector. However, given the difference we have seen so far between what Donald Trump says and what eventually makes it way through policy, there is significant scope for a better outcome than one might expect between the two countries.
Furthermore, with the important exception of the confrontation between Trump and the Chinese on trade, our analysis shows, that the long term case for emerging markets remains largely unaffected by the events which lie behind much of the negative newsflow in the sector.
In this article we explore the issues affecting emerging markets and find that for the most part they have done poorly mainly thanks to specific issues with individual countries and regions rather than global dynamics besetting the region as a whole.
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