Chart of the Week

Weekly chart using economic data to address timely market topics from the Wells Fargo Investment Institute Global Investment Strategy team.

March 20, 2019

Audrey Kaplan, Head of Global Equity Strategy

Ken Johnson, CFA, Investment Strategy Analyst

Does the Future Belong to Emerging Markets?

Does the Future Belong to Emerging Markets?Source: Wells Fargo Investment Institute, FactSet, March 19, 2019.

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Seven of 11 MSCI Emerging Market Index sectors have higher 3-5-year earnings-per-share (EPS) growth forecasts than U.S. S&P 500 Index sectors

The chart shows analysts’ consensus on the 3-5-year EPS growth forecasts for MSCI emerging market equity sectors (blue bars) compared to the U.S. S&P 500 sectors (orange bars). Emerging market forecasts exceed those for U.S. large-caps in all sectors except Information Technology, Energy, Materials, and Consumer Discretionary.

The consensus EPS forecasts for emerging markets suggest a stronger 11.4% annualized earnings-growth rate for 2021 and beyond, compared to 10.8% for the U.S.

What it May Mean for Investors

We hold a most favorable view on Emerging Market Equities. China is the largest country component of the MSCI EM Index, and we expect China’s fiscal and monetary policy path to support emerging markets corporate earnings growth going forward. We recently adjusted our view on U.S. Large Cap Equities to neutral from favorable, based on our expectation for only modest U.S. earnings gains in the first two quarters of 2019.

Risks Considerations

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets.

Definitions

MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.

S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the U.S. stock market.

An index is unmanaged and not available for direct investment.

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

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