Is it the end of the homogenous EM story? Dr. Nisha Long, head of cross-border investment research, looks at the standout stories from the EM market over the course of 2017.
Emerging markets pushed ahead in 2017 with higher economic growth and good earnings potential. Last year’s rally was supported by an uplift in global trade and also benefited from US dollar depreciation.
However, despite increased inflows, investors have relatively small positions in EMs as they remain cautious on growth prospects. The MSCI EM index returned 37.8% in USD terms in 2017 and the forecast for a good chance of upside returns this year remains intact.
The index consists of 24 emerging market countries and the chart shows the performance of the top five constituents as at December 2017, which include China (29.67%), South Korea (15.39%), Taiwan (11.27%), India (8.77%) and South Africa (7.12%). It is important to look at emerging markets country by country to identify the strongest performers. In 2017, China and South Korea led the pack with returns of 54.3% and 47.8%, respectively.
China has enjoyed a strong rally but South Africa, on the other hand, is still viewed cautiously, despite improved performance because its growth rates are falling compared with other emerging market countries. Investors who approach these markets selectively should fare well in 2018.