I have been following closely on the Emerging Market for any investment opportunity. Just saw this useful article from Bloomberg and thus summarize some key points for my own record.
Growth gap, earnings, valuations back bullish equity outlook
Stocks rise even as political risks rise from Russia to Brazil
All the chaos was overshadowed by investing fundamentals, according to market participants who point to a surge in corporate earnings forecasts and economic growth that far outstrips expansion in developed countries. Economists predict that growth gap, which widened last year for the first time since at least 2010, will expand in the next three years, meaning a bigger middle class and greater opportunities for businesses. That makes it easy to overlook the political risks.
“Markets have become used to the political noise, especially after Brexit and the unexpected election in the U.S.,” said Simon Quijano-Evans, an emerging-market strategist at Legal & General Investments Management Ltd. in London. “The question is: When does all of this culminate into a huge balloon that eventually explodes? I don’t think we’re there yet.”
Since January 2016, there has been a rebound in earnings estimates for companies based in developing nations. Analysts raised the profit outlook for the MSCI Emerging Markets Index by the most since September 2010 in the last quarter. Particularly notable was that some of the most politically turbulent nations — including Russia and Turkey — saw their forecasts rising to records.
The increase in earnings estimates is keeping a lid on valuations, so much so that developing-nation stocks are becoming cheaper relative to their developed-nation peers even as they rally. The greater discount, coupled with higher growth and earnings potential, makes them irresistible to investors even amid all the political drama.