Emerging Markets June Boom

Douglas Coté

The standout performer in June has been emerging markets (EM) both during market surges and pullbacks. One month does not make a trend, but it is worth looking into the drivers of a purportedly “risky” trade that has featured both positive upside and downside capture ratios. Who would have thought that EM was the place to be, with all the “fits and starts” of re-opening the world’s economies? One thing for sure is that emerging markets are not “your father’s Oldsmobile.” The original BRIC — Brazil, Russia, India and China — which put Brazil first and China last is long gone.

FactSet’s GEOREV — exposure by geographic revenue by country — shows that China’s revenue contribution to EM is now over 40% and has increased more than 20% in one year. This has to do with MSCI increasing the weight of China “A” shares in the MSCI Emerging Markets index, from 5% to 20% between October 2018 and October 2019. Meanwhile, China is acting forcefully to boost its economy through this COVID period, which is helping its markets significantly and thus EM as well. Year to date through yesterday’s close, the Shenzhen Stock Exchange A Share index is up about 13%, more than the NASDAQ. Investors no longer can avoid considering China in building well-diversified portfolios.

This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) changes in laws and regulations and (4) changes in the policies of governments and/or regulatory authorities. The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Fund holdings are fluid and are subject to daily change based on market conditions and other factors.

Past performance does not guarantee future results.