March 20, 2019
Audrey Kaplan, Head of Global Equity Strategy
Ken Johnson, CFA, Investment Strategy Analyst
Does the Future Belong to Emerging Markets?
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.
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.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
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