Despite a “really lousy second quarter,” emerging market stocks remain relatively attractive in global portfolios, according to Ben Inker, who heads GMO’s asset allocation team.
In the latest GMO quarterly newsletter, Inker explains that at their current valuation, following a second quarter selloff, emerging market stocks are “the most attractive asset … by a large margin. … Emerging equities are cheaper than they were three months ago and history shows that when these assets are cheaper they perform better over time.”
In the longer term, “valuation is much more predictive of returns for emerging than momentum,” writes Inker.
In the meantime, however, emerging market stocks can be volatile – they are “one of the riskiest risk assets out there,” says Inker — and they were hammered on Monday as the financial crisis in Turkey intensified.
The iShares MSCI Emerging Markets ETF (EEM) fell 1.4% on Monday, while the iShares MSCI Turkey ETF (TUR) plunged 11% following Donald Trump’s announcement that was doubling tariffs on metal imports from Turkey.