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Templeton & BlackRock | It’s time to buy Emerging Markets

2018-07-18, according to Bloomberg, strategies and investors from Goldman Sachs Group Inc., Franklin Templeton Investments and BlackRock Inc. say cheap prices, rising corporate profits and strong fundamentals will outweigh risks from a tit-for-tat trade war, rising interest rates and potential U.S. recession.

Here are some of the charts that supported for the EM buy.

  1. Performance of EM equities relative to U.S. large caps as measured by the spread of rolling 3-months returns, is near a threshold of 17%, which hasn’t been breached since the global financial crisis.

2. While calling the bottom is never easy, developing-nation stocks have rallied an average of 32% in the 12 months after their deepest drawdown of the year, according to data compiled by SunTrust Private Wealth.

3. Weekly outflows from emerging-market debt funds hit the lowest since the U.S. election in the week ending June 27, according to EPFR Global data.  The last three redemption of that magnitude or greater preceded rallies in developing-nation dollar bonds during the next 3 months.

4. The trade competitiveness of developing nations is close to the same level as Jan 20, 2016, the beginning of the big emerging-market rally.

5. If the past decade is any guide, dollar strength isn’t likely to prove a headwind for emerging-market assets much longer.  Sharp rallies in the greenback have typically lasted 3 to 8 months and rarely exceed a year.  The latest one is five months deep.

6. While the number of developing economies in expansion mode has declined since hitting a peak in February, the good news is that emerging markets have historically bounced back quickly — even after 2008.

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