Emerging markets were the greatest investment opportunity of the last decade, and arguably the most disappointing of the current one. The MSCI emerging markets index has now fallen in four out of the last five years, and dropped a thumping 14.92% in 2015.
Foolish fun
This is likely toexcite the attentions ofFoolish investors who like to dive into burnt-out sectors before they fire back into life and the bargains have all gone. It hascertainly excited my attention, as has the 15% rise in the FT Trustnet global emerging market sector in the last three months. Fund managers are alsojumping up and down, no doubt hoping the spotlight will startshining on this out-of-favoursector again. BlackRock reckons emerging markets are in a sweet spot. Should you sink your teeth in?
Emerging market ETFshave attracted nearly $16bn this year to recoup 75% of their 2015 outflows, while short traders have been heading for the exits.Richard Turnill, global chiefinvestment strategist at BlackRock, pins this on the weakening US dollar, a rebound in commodity prices and recovering Chinese economy. But he isnt getting too excited, warning that emerging marketvaluations are no longer unambiguously cheap. Recent trends could reverse, Turnill adds, anda sustainable reboundwould requireevidence of structural reforms addressing excess debt, industrial overcapacity and low corporate profitability, particularly in China.
This is the year that is
Other fund managers share his enthusiasm: Robin Geffen and James Dowey saythat 2016 will be remembered as the year you should have been buying emerging markets. They warn that recentemerging market equities have seenseveral falsedawns lately, with the sector surging at the start of 2015, only to be destroyed by the summer China crash. Today they favour China and Russia, and are steering clear of beleaguered Brazil.
Many of todays optimists appear to be pinning their hopeson the latest bout of Chinese stimulus, brushing over structural problems such as massive debt, huge surplus capacity, a housing bubble and very shadowy banking system. None of these problems have been solved and it may take another crash to do it.
Emerging London stocks
That said, a Chinese and emerging markets recovery would be welcomenews for oil and commodity stocks. It would also booststrugglingFTSE 100 companies such as spirits giant Diageo, fashionistaBurberry Group, emerging markets fund manager Aberdeen Asset Management, and Asia-focused banks HSBC Holdings and Standard Chartered. All havebeen punishedby the emerging markets downturn but may benefitfrom arevival.
Or you could try household goods giants Reckitt Benckiser Group and Unilever, which have shruggedoff the downturn but maystill cash in when emerging markets consumers are feeling richer again. There are signs of upward motion already, with Aberdeen up 26% in the last three months.
Emerging markets have been in a sweet spot before, so lets hope analysts arent over-sugaring this one.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Aberdeen Asset Management, Burberry, Diageo, HSBC Holdings, and Reckitt Benckiser. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
