Emerging Markets Fight Through Volatility and Headlines

Emerging Markets Fight Through Volatility and Headlines


In 2019, we are seeing investors focusing
more on the bottom up—looking more for stocks that will outperform—and less on just headline
news. So, what has been positive so far for the
first half of 2019 is that after first quarter earnings, so as we saw a lot of volatility
in the first quarter. But as companies started reporting after the first quarter, we saw
that markets started to really distinguish between companies that continue to do well,
continue to show growth, earnings acceleration, and the ones that do not. On the downside, I think it’s the continuation
of a lot of the rhetoric around trade wars. Obviously, the issues between the U.S. and
China are still lingering; nothing has been decided. If anything, I would say it has actually
worsened some, in terms of now China being more proactive in responding to some of what
they feel are accusations from the U.S., and some of the measures that we’ve been seeing
against some of the corporates on the Chinese side. And that has also extrapolated to other
countries as well. We’re starting to see a little bit more rhetoric around other countries
in emerging markets. The thing with emerging markets is all these
economies, and all these companies in the emerging market space and universe—they
are actually very used to volatility, they are used to the economic environment changing
pretty fast. So, management tends to very good and sharp in terms of shifting and trying
to adjust. For example, we’re seeing some manufacturing
that’s moving out of China, or already thinking about moving out of China to other emerging
countries, other countries in Asia. Smaller countries, but with fewer issues with trade
with the U.S. So that’s a positive; it’s actually bringing investment to a lot of those smaller
countries. In other parts of the world, we’re also seeing commodities being purchased more
out of emerging countries versus the U.S., because of again, that shift that’s happening
already. So that’s positive for trade balances in other countries. We continue to find plenty of names to own
in emerging markets. Emerging markets continue to grow, even with all the headline news and
issues with trade war, and everything else globally. Obviously, there is an opportunity
there—dynamic companies that are continuing to really invest and look for that earnings
acceleration that we look for. For the rest of 2019, I wouldn’t be surprised
if we continue to see the same level of volatility, the same level of headline news and rhetoric
around trade wars; political issues; geopolitical issues, as well, going on around the world.
But it seems, again, that the markets are now realizing that there are differences,
and there are winners and losers in this environment, and the market is starting to really focus
more on what the winners are, as opposed to just focusing on the headline news.

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