On October 8th, we heard 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:
- 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.
- 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.
- 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