After facing a volatile 2018, we expect emerging markets (EM) to recoup its losses and post strong gains in 2019…..
By Aneeka Gupta – WisdomTree
We believe negative sentiment stemming from the strong US dollar, ongoing trade wars and the collapse of the Turkish Lira, was a key reason for strong outflows from emerging market assets in 2018.
Fundamentals for most EM economies continue to remain stable.
More importantly, the idiosyncratic risks among a few emerging market economies such as Venezuela, Argentina, South Africa and Turkey are not accurate representatives of emerging markets. We have also seen significant economic strides being made by each of these countries since then.
Emerging markets boast of having the lowest valuations among any major asset class globally, with nearly a 30% discount to developed markets and they offer a free cash flow yield estimated at 5-7% over the next year.
We expect sectors such as healthcare, real estate, consumer discretionary and utilities to benefit the most from higher earnings growth.
We expect to see a turnaround in earnings growth in Brazil, Mexico, Turkey and Russia.
We are seeing further signs of a modest deceleration in global growth impact the Federal Reserves interest rate path for 2019 and lower oil prices. Both of which should lend buoyancy to emerging market assets.