On October 8th, we hear2015-10-08 09.38.46d Frederick Jiang, CFA, portfolio manager with the Ivy Funds (pictured with Bill Stone, Bobby Lenoir, and Doug McDaniel) speak on a panel addressing the investment outlook for the emerging markets.  This is an investment sector that has been beaten up in the last 5 years.  Per Frederick and the other panelists, here are three reasons investors should consider this sector now:

 

  1. For 2016, projected growth rates for GDP (Gross Domestic Product)   for the emerging market countries is almost twice the projected growth rates for the US and Europe.
  2. Over the last 10 years, the emerging markets have outperformed the S&P 500.  However, for the last 5 years, the S&P 500 has significantly outpaced the emerging markets.  In fact, the emerging markets have a NEGATIVE average annualized return for the last 5 years.  Often, we see a ‘regression to the mean’ after periods of significant underperformance.  Stated simply, emerging markets appear to be significantly undervalued.
  3. Normal ‘bear market’ cycles for emerging markets typically last 4 to 7 years, and we are now 6 years in to this bear cycle.  Perhaps we are seeing the end of this bear market cycle and the beginning of a bull market cycle.

 

We would remind you of the words of one of the pioneers of global investing, Sir John Templeton, who often quipped that ‘the best time to buy a straw hat is in the winter’.   Emerging markets have been out of favor for about 5 years but with the optimistic forecated growth rates in GDP and consumer spending, the argument for a significant rebound in emerging market stocks is compelling.

 

*month to date performance of the MSCI Emerging Market Index as of 10-12-2015 per www.msci.com

Sources for index returns from www.msci.com and www.spindicies.com

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