It is seldom during mass outlets that emerging markets fall into the reach of investors as a safe heaven place. However, they oppose this claim in time of market chaos that we are witnessing.
The S & P500 is already down 15% over the past three months and is getting closer to entering the bear market. The MSCI index of emerging markets at the same time lost only 7.2% of its value. Several factors turn the EM sector into a favorable one. Or at least that's what Jim Paulsen thinks, chief investment strategist at Leuthold Weeden Capital Management LLC.
Defensive shares keep the S & P500 on the surface, but this can be seen as a signal of an impending weakness in the US economy. At the same time, better performance of cyclical, risky stocks from emerging markets implies improving economic conditions in the region. The current stock prices in these markets are very attractive, including technically featuring comfortable entry levels with long positions as they are offered with a strong discount. The prospects for improving US-China trade relations and a weaker dollar next year will only be supporting factors.
However, the scenario in which the world economy is about to enter a strong recession will be catastrophic for the EM sector, but it is quite possible for emerging markets to push global indexes up if the economic recovery lasts for a few more years.
Source: Bloomberg Finance L.P.
Graphs: Used with permission of Bloomberg Finance L.P.
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