Erste Asset Management

Equity performance: focus on emerging markets

Equity performance: focus on emerging markets
Equity performance: focus on emerging markets
Share post:

The stock exchanges in the emerging economies and their performances have fallen short of expectations in recent years. Speculations about the weakening economy of China, the decline of commodity prices, and an appreciating US dollar have had a detrimental effect on emerging markets. However, the trust of investors in these markets has been making a comeback since 2016. In spite of Donald Trump’s election victory and the fear of a US policy of protectionism, the emerging economies are currently outperforming the developed ones.

Reasons for the regained trust

According to the International Monetary Fund (IMF), the growth differential between the emerging markets and the developed markets will expand from 2.5% to 3.3% by 2021. Due to stable growth in the emerging markets – mainly, yet again, in commodity-exporting countries such as Brazil or Russia – the economists expect the economic data for 2017 to turn positive again. In 2016, said countries had still recorded negative GDP growth rates.

EM and DM: GDP Growth and Spread


The emerging markets exchange rates have stabilised in comparison with the leading currency, i.e. the US dollar. The Mexican peso, the Turkish lira, and the South African rand are on the weaker side of this comparison. Also, the rising commodity prices are supporting emerging markets. The low inflation provides the countries with enough wiggle room to cut interest rates and thus to stimulate the economy as required. Since 2011 productivity in the corporate sector has been outgrowing real wages.

The often-predicted hard landing in China will not occur in the foreseeable future. Rather, China has been trying to change its growth model from an investment-driven export economy to a consumption and service-oriented economy. The necessary reforms in government-controlled companies are being cautiously implemented. In doing so, the reduction of overcapacities, the curbing of credit growth, and further liberalisation of the market are high priorities.

Good prospects for long-term growth

Since the turn of the millennium, average growth among emerging economies has tripled. They are and remain the growth engine of the world. This is due to better resources (e.g. commodities), healthier public budgets, and a younger demographic. The growing wealth creates a middle class and a new generation of wealthy consumers. In addition, the growing urbanisation fuels infrastructure demand. Investments in research and development (in terms of GDP) are already on an average EU level. The access of the population to education is improving while labour and the corporate sector are increasingly competitive on a global scale. Some of them are already world market leaders on the back of innovation.

Conclusion: emerging markets more attractive than developed markets

The earnings outlook for companies from the emerging markets clearly shows a positive trend; a growth rate of about 15% is expected for 2017.

MSCI EM and DM – 12m Forward Earnings


MSCI EM and DM – PB and Dividend Yield



Both the outlook and the valuation of emerging countries is attractive. The stock-picking process in emerging markets has become more selective due to the increasing degree of global interconnectedness, the effects of the announced US policies, and geopolitical risks. The continuous improvement in the area of transparency in corporate governance increases the attractiveness of emerging markets for investors.



Legal disclaimer

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to § 21 AIFMG, and the Key Information Document can be viewed in their latest versions at the web site within the section mandatory publications or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the web site A summary of investor rights is available in German and English on the website as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to § 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.