Emerging Markets Rebound as Normalcy Recovers
By David Semple, Portfolio Manager
Emerging markets are in the process of economic healing despite the uneven impact of COVID-19. Lower rates and higher fiscal spend have created a significant rebound, but at what cost? Additionally, it is worth pointing out that risk aversion has disproportionately affected small- and mid-cap stocks in emerging markets. As markets normalize, we believe it is reasonable to expect relative outperformance from these smaller stocks. As a “true” all capitalization strategy, these changes in sentiment can materially affect the relative performance of our portfolio.
As the third quarter unfolded, so did the ongoing rebound of emerging markets economies. Easing of virus restrictions, coupled with supportive emerging markets government policies, boosted growth across emerging markets. Indeed, emerging markets governments around the world continued offering fiscal stimuli, including discretionary easing and loan guarantees. Additionally, our expectation is that core emerging markets central banks will maintain their commitments to keep monetary policy accommodative well into 2021.
With regards to EM Asia (ex-China), this group is on its way to economic recovery as well. However, COVID-19’s impact is highly divergent across the region. Virus control measures have been lifted for the most part, but the situation remains problematic in some countries. For example, India, Indonesia and the Philippines continue to face increased rates of COVID-19. Domestic activity and regional trade picked up during the quarter, whereas services activity remained well below normal levels. Some countries in Latin America have also struggled to control the virus, and unfortunately tend to have a smaller amount of “wiggle room” to address these challenges.
MVIS India Index vs. MVIS Indonesia Index vs. MVIS Philippines Index
09/30/19 - 09/30/20
Source: MV Index Solutions. Data as of 30 September 2020.
About the Authors:
Mr. Semple is a veteran of emerging markets investing, with 30 years of experience. From 1996 to 1998, Mr. Semple was a portfolio manager for Asian-focused funds and served on the team sub-advising VanEck’s VIP Emerging Markets Fund at Peregrine Asset Management (Hong Kong). From 1993 to 1996, he served as sales director and regional strategist at Peregrine Brokerage. Prior to 1993, Mr. Semple was a portfolio manager specializing in Asia equity markets at Murray Johnstone (Glasgow). Mr. Semple is a member of the CFA Institute and the Association of Investment Management and Research. He received a Bachelor of Law with Honours from the University of Edinburgh, Scotland. He has had numerous media appearances, including CNBC, Bloomberg, and NPR. Additionally, he has been quoted in the Financial Times, The Wall Street Journal, and Barron’s, among others.The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.