This year’s rally in emerging stock markets is a true “classic,” and should be an indicator for a better 2017 in that arena, said Edward Kerschner of Columbia Threadneedle.
Speaking at an emerging markets presentation during the Morningstar ETF Conference in Chicago, Darek Wojnar, head of ETFs of Hartford Funds, agreed with Kerschner, stating the “fundamental growth across emerging markets is not just growing faster than developed economies,” but the growth gap between them has stabilized and has possibly even reversed.
Jeremy Schwarz, director of research for WisdomTree Asset Management, said the environment is due in part to the Federal Reserve’s inaction. He explained that “everyone thought they would hike [interest rates] four times, and now it may not until December….”
He also said that “last year everyone was freaking out about China and its currency and how to manage it,” but that has curtailed and China does not seem to be doing as poorly as originally feared.
Moderator Patricia Oey of Morningstar asked about valuations, and what return expectations are on emerging markets.
Schwartz said it depends how one slices up emerging markets, stating those with low volatility are the most expensive.
Wojnar noted that regardless of what one looks at—net income, dividends, etc.—“there are parts of emerging markets that, compared to developing markets, look more favorable, but there is a consensus [emerging markets] should be less expensive than developed.”
Kerschner agreed emerging markets are cheaper than developed markets, but within emerging markets, some are expensive, and, in fact, “they aren’t getting wealthier than the United States,” but the rate at which they are getting wealthier is growing.
Regarding risks in emerging market investing, Wojnar said emerging markets can’t be characterized as lower risk than developed. That said, he added, “Risks are part of this universe and must be considered broadly.”