How are emerging markets tracking this year?
Money Management had a look at emerging markets in FE Analytics to find that the sector as a whole provided solidly in the year to this May’s end, delivering returns of 9.16 per cent.
Within the sector, there was stark variation. The sector’s best performing fund over that period, Legg Mason’s Martin Currie Emerging Markets Trust, returned 18.55 per cent, with less than half of all funds (20 of 50) hitting the double figures.
The worst performer, the Aberdeen Emerging Opportunities Fund, saw investors plunge into negative returns at -0.88 per cent. This was the only fund in the sector in FE Analytics to deliver returns under zero.
Of the various emerging market regions, the Asian market looked strongest over the above time period.
The Martin Currie Emerging Markets Trust had its heaviest regional concentration in Asia with 41.86 per cent of its assets under management invested in the region. The second best performing fund, BlackRock’s iShares MSCI BRIC ETF, had over 80 per cent of its assets in the Pacific Basin or Asia Pacific, and another top performer, the Fidelity Global Emerging Markets Fund, had 55.85 per cent of its funds in Asia Pacific emerging equities.
JP Morgan’s Guide to the Markets for 3Q 2018 reinforced this, with the firm’s global market strategist, Kerry Craig, saying that Asian emerging markets were stronger over the last quarter and had seen less punishment from investors.
Craig put this down to improvements in positions, governments and central banks in the region acting to manage debt, and those markets showing less sensitivity to the US dollar. He also said that there was a growth story coming through under that lower sensitivity.
JP Morgan’s market outlook also found that the weakest in the emerging market herd were being picked off, with those still recording decent positioning largely being from Asia.
It’s worth noting though, that Craig also warned against passive management in the emerging markets sector, with a key reason being that regional trends could not be relied upon for this asset class.
FE Analytics backed this claim up; just one of the top ten retuning funds for the sector to 31 May, 2018 was an exchange-traded fund (ETF), with the BlackRock iShares MSCI BRIC ETF delivering 16.54 per cent.
Part of Craig’s reasoning for that is that trends in emerging markets often aren’t regional; you need to know the individual market better. He warned that investors generally can’t even dive down on a country basis to identify pain points in emerging markets, but instead need to focus on much more micro and industry-based factors.
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