Add Emerging Market Strength in Global Weakness

Market volatility has jumped in recent weeks. Strength in U.S. employment and inflation data has brought weakness to global equities as markets anticipate the Federal Reserve will keep rates higher for longer. We believe investors should use this volatility and future bouts of weakness to add emerging markets to their portfolio. Here’s why.

  • Emerging markets can be defensive

Decoupling of emerging markets from the U.S. and developed markets can and typically does happen when the right conditions exist.

    • The correlation of emerging markets versus the S&P 500 Index reached a four-year low in 2022 and Chinese equities correlations with the S&P 500 are close to 20-year lows 1
    • Today, major emerging economies are on very different trajectories than those in developed economies largely because of their prior monetary tightening cycles and the easing of COVID restrictions in China
    • We expect emerging markets to outperform U.S. markets if U.S. inflation and interest rates remain higher for longer