Back to the complete issue
Tuesday, 24 August 2021

Commodities, strong earnings could resuscitate emerging-market stocks, say analysts

A “lost decade” for emerging-market stocks could be coming to an end, as the commodities boom and earnings optimism perk investors’ interest in companies in the developing world, Bloomberg reports. Goldman Sachs, Bank of America and Lazard Asset Management all expect inflows into undervalued EM equities to pick up as the vaccine rollout gains pace and the global recovery continues, despite headwinds in Asia caused by China’s escalating crackdown on business.

EM indexes have consistently underperformed since the financial crisis. MSCI’s EM stock index has increased just 8% in the 10 years since the global financial crisis — and is currently only slightly above its post-crisis market peak in 2011. In the same time, equities in developed markets have more than doubled in value. So far in 2021, the EM index is down 5%, while the benchmark for companies in developed economies has risen by 14%.

Goldman Sachs is “quite upbeat” on EM stocks, one analyst told Bloomberg, naming Brazilian, Russian and Mexican currencies as top picks. Meanwhile, a Bank of America strategist said he expected the acceleration of capital inflows into markets in Eastern Europe, the Middle East and Africa since March to continue “given supportive macro drivers and equity valuations.” Some analysts are predicting that emerging-market equities could gain 15% in the next 12 months.

EMs might need some time to deliver on their potential: Once vaccination rates pick up, one State Street analyst said he expects EM equities to outstrip EM debt and even catch up to developed-market equities. “Don’t discount the EM consumer when the pandemic’s grip on consumer activity fades,” he told Bloomberg, adding that technology would play a key role in boosting developing nations’ growth.

But others are more pessimistic: BlackRock has warned of a “risk of permanent scarring” to EM growth as a result of slow vaccination rates, a withdrawal of policy support and heightened uncertainty about the trajectory of the USD. Many central banks in emerging economies have begun raising interest rates in response to rising inflation, which BlackRock said brings a “greater risk of scarring.”

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Etisalat Misr (tax ID: 235-071-579), the leading telecoms provider in Egypt; and Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt.