Emerging-market stocks usually do as well, or better, than their rich-world counterparts when risk appetite is healthy. But this year they have lagged. The MSCI World Index of 24 developed markets has gained around 8% in 2013; the MSCI Emerging Market Index has slid by 2%. So what’s gone wrong?
Growth has been solid in emerging markets, says Stefan Wagstyl in the FT, “but not quite as good as expected”. Barclays Capital, for instance, has trimmed its 2013 emerging-market growth forecast to 5.3% from 5.5%. Companies have also been less profitable than in the rich world. Emerging-market profits grew by just 3.7% last year, compared to 4.3% in America.
One problem has been the poor performance of commodities, which are major exports for many emerging markets, while the slumping Japanese yen, along with Europe’s recession, helps explain why the recent rebound in Asian exports appears to be running out of steam.
High inflation in some states may prevent interest-rate cuts to bolster growth. In addition, says Capital Economics, recent data suggest China’s bounce could already be stalling, which will fuel concern over emerging-market growth. Emerging equities’ relative weakness could “persist for a while yet”.