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By Patricia Ribeiro - January 8, 2019
After a tough 2018, I’m very optimistic about emerging market equities this year. Sure, there are still headwinds—notably, the ongoing trade dispute between the U.S. and China—but I do believe the two nations will work out an agreement for one simple reason: no one wins a trade war.
There are other reasons I’m anticipating a better year in my investment discipline. First, the growth drivers are still there in emerging markets. Second, valuations have gotten attractive. And third, with the prospect of the U.S. Federal Reserve tapering its interest rate increases, that could present a nice tailwind for emerging markets, as well.
In my latest video, I present my argument for investing in emerging market equities, as well as offering a bit of insight into what worries me as we start 2019.
2019 should be a better year for emerging markets. Valuations are really attractive. The drivers, the growth drivers are still there for them.
2018 was really difficult. What we saw throughout the year was that the market priced in no growth in emerging markets. In 2019, we’re already starting from a bottom—so there has been a lot of adjustment with pricing in the market. We're starting from lower expectations. That's why it also gives me this comfort that I think in 2019, any clarity in the macro-environment, certainly between U.S. and China, that should actually help the market.
If nothing gets resolved, then nobody's winning in this trade war. Clearly China is not, but neither is the U.S. For me, the expectation is that there will be some kind of agreement. It's difficult to figure out exactly how it's going to be, but something. And I think anything that we get to a point where there is some clarity into the future, again, that's going to be very positive for emerging markets.
I think any visibility into rates in the U.S. is a positive for emerging markets. It seems that it's going to be very manageable from the assumptions in the market today. That's very positive. The other thing has been elections in emerging markets. We went through a series of elections in 2018. Now, in 2019, there are a few—India for example, Indonesia—but they should be a lot more manageable. I think the challenge that we saw in 2018 was that there were several countries and also there was very little clarity in who was going to win, what would be the policies of these countries going forward. That's out of the way, so that should be another positive.
It's always what you don't expect is what we worry about. New issues with emerging markets, either being geopolitical issues, challenges in terms of more clarity on the growth going forward, different governments and what policies the governments will be bringing in, that's part of emerging markets. That's part of our day to day. What worries us is, for example, if the government decides to introduce new regulation that will impact a certain sector versus another. Those kinds of challenges, where we might have exposure in the portfolio, we need to address it pretty quickly.
2019 should be a better year for emerging markets. Valuations are actually very attractive. The market has actually repriced the stocks. The perception is still there, or the market is not rewarding growth, even with companies that are actually showing very strong growth. 2019, because we started from a much lower base, and with the expectation that the growth will continue, should be more attractive.
Trade war aside, Sr. Portfolio Manager Patricia Ribeiro is still finding opportunities to invest in China. Find out how in her latest quarterly update.
In 2019, we are seeing emerging markets investors focusing more on the bottom up—for stocks that will outperform—and less on just headline news.
2018 may have been difficult for emerging markets, but Sr. Portfolio Manager Patricia Ribeiro has three reasons to look forward to a better 2019.
January 8, 2019
2018 hasn't been kind to emerging markets. Sr. Portfolio Manager Patricia Ribeiro believes fears of contagion, which never materialized, caused the recent volatility. Read why she's still encouraged by opportunities.
October 29, 2018
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The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
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