InFocus: Global Macro 2.0

Have investors missed the emerging markets rally

Have investors missed the emerging markets rally

With the emerging markets rally keeping pace this year after the dramatic outperformance of 2017, investors yet to allocate to EM are asking on major question: Have I missed the boat on emerging market investments?

According to Tyler Mordy, President & CIO at Forstrong Global, the answer is a definitive ‘no’. “We are only in the foothills of a long journey and by the time this rally is nearing completion, the consensus will be declaring emerging markets king,” Forstrong says. “We are nowhere near that phase.”

Although emerging markets underperformed US stocks for the bulk of the 90’s, from 2000 they went on to outperform the US for 10 of the next 12 years. Mordy believes emerging markets could currently be on a similar path of sustained outperformance and attributes four main reasons for his stance: The US dollar’s likely peaking, dovish monetary policy and lower commodity prices, the valuation gap between Asian and Western markets, and fiscal easing, notably in China and India, which bodes well for corporate earnings.

“It is also important to recognize that EMs already had a large slowdown between 2010 and 2016,” Mordy says.  “Since then, currencies have weakened (boosting competitiveness), commodities have fallen (raising consumption) and policy has turned stimulative. Now, all signs point to a rebound in EM economies. Upward EPS revisions are stronger in EM than any other major regional index and earnings growth is stronger than any other index (with the exception of the UK’s FTSE 100).”

The nature of the current booms differs from that rally in the ten years spanning 2002 through 2011, which featured stellar performances of countries and sectors that catered to China’s rapid industrialization era. The narrative in emerging markets is not evolving and according to Mordy EM fundamentals look attractive, particularly versus Western countries, and the numbers tell a compelling story.

“Because the US has always been a leading indicator of global business cycles, EM countries with hard or soft pegs to the USD were forced to broadly imitate the Fed to prevent the interest rate gap from widening too much and capital flight following,” Mordy says. “This time there is no lockstep. In fact, three of the largest EM countries have cut rates this year as the US has raised them.”

“Looking ahead, EM country and sector selectivity will remain key. Favor domestic-focused, reform-minded, commodity importing countries. Most are found in Asia.”


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Founded in 2001, Forstrong Global Asset Management Inc. manages money on behalf of individuals, financial professionals and institutions. Our multi-asset global macro thematic approach has demonstrated the ability to safely steward client assets through challenging markets and economic environments. Forstrong is part of the Industrial Alliance Insurance and Financial Services Inc. (TSE: IAG) family of wealth management companies, which together serve over $100B in client assets.