Emerging Markets: A Closer Look

3 Oct 2014

This past spring we highlighted the argument for maintaining some exposure to emerging market (EM) equities (see “Emerging Markets: Caution, Not Abstinence”). Since then EM stocks have outperformed their developed market counterparts.

The asset class has benefited from stabilization in the Chinese economy, market-friendly election results in India and Indonesia and the growing perception that EM stocks are reasonably priced in a world with few bargains. The turn in fundamentals has also led to a turn in sentiment. EM equity flows have been positive for several months, although EM s are still under-owned for the most part.

Even after the recent rally, we still believe that emerging markets represent a long-term opportunity, and that investors still underweight should consider bringing their exposure back to at least a market weight.

That said, not all emerging markets are equal. EM Asia and parts of Latin America have rallied, but many markets in EMEA including Poland, Hungary and Russia continue to struggle. For these reasons, along with material differences in valuations, we believe that investors should continue to be selective.

On a relative basis, emerging markets in Asia, including China, appear particularly attractive. After several years of underperforming, the region remains relatively inexpensive, despite the recent gains. In addition, most of EM Asia should also benefit from relatively strong economic growth and less exposure to reversals in capital flows.

Issued in Hong Kong by BlackRock Asset Management North Asia Limited. This material has not been reviewed by the Securities and Futures Commission. Investment involves risks. Past performance is not a guide to future performance. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Any opinions contained herein, which reflect our judgment at this date, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. This material is for informational purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock fund and has not been prepared in connection with any such offer. Any research in this material has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. BlackRock® are registered trademarks of BlackRock, Inc. All other trademarks, servicemarks or registered trademarks are the property of their respective owners. ©2014 BlackRock Inc. All rights reserved.

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