Global emerging markets equities have proven relatively resilient through the market chaos of 2020. Growth has come mostly from internet and broader technology stocks in China, South Korea and Taiwan, the three countries which account for two-thirds of the global equities index.
Emerging markets have handed investors more than $5 trillion in wealth this year and market watchers may be confident the rally will continue into 2021. The MSCI Emerging Markets Index is up 4.45% over the past month and will likely finish 2020 with a double-digit gain.
Bank of America recently surveyed fund managers collectively holding $526 billion in assets. More than half of leading fund managers interviewed indicated emerging markets are their favorite asset class for the coming year.
Meanwhile, China emerged as the overwhelming favorite across equities and currencies, a Bloomberg Nov. 18-25 survey of 63 investors, strategists and traders found. Asia kept its top position for currencies and stocks in the survey as the region led the recovery from Covid-19.
JPMorgan’s Joyce Chang told CNBC stocks in emerging markets may rise as much 20% in 2021. In particular, the chair of global research at the firm sees opportunities for stocks in Brazil, Indonesia, South Korea as well as Thailand.
(MSCI EMERGING MARKET INDEX 2001-2020 Trailing 12M Earnings per Share 53.1789 Source: Bloomberg)
Earlier this month, Jurrien Timmer director of global macro in Fidelity's Global Asset Allocation Division, wrote in Fidelity Viepoints that emerging markets stocks seem finally poised to outperform in 2021 and beyond.
“EM equities are also a play on improving financial conditions. With both the Treasury and Fed likely embarking on a policy that targets unemployment for all segments of the US population, both fiscal and monetary policy are likely to remain quite stimulative. This bodes well for financial conditions and therefore, I believe, EM” Timmer concluded.
Saxo Bank’s guess is that emerging market equities next year will do great as Asia is coming out of the Covid-19 pandemic much stronger than the developed world.
“China will most likely ease its financial conditions through monetary policy in the early part of 2021 lifting sentiment but also valuation multiples on emerging market equities. In 2021, earnings in emerging markets will come roaring back at an even more impressive rate than in the developed world creating a power positive tailwind of earnings surprises and strong earnings growth” Peter Garnry, Head of Equity Strategy at Danish investment bank wrote.
Of note, between 2003 and 2007, emerging markets were the top-performing asset class in the world. Why not again? But as economies will recover at different speeds, investors will need to monitor the policy responses in each country to properly assess potential opportunities.