Emerging market equities are on the brink of a significant rally, according to a recent analysis by Alpine Macro. The firm highlights several key factors that are setting the stage for strong performance in these markets:
- Cyclical Profit Upswing: Profits for EM firms are anticipated to rebound, spurred by improvements in global manufacturing and increased capital expenditures, particularly in non-tech sectors across Asian economies.
- Monetary Policy Easing: EM central banks are expected to continue easing monetary policies, providing further market support.
- Valuation: Alpine Macro notes that EM equities and currencies are significantly undervalued, presenting a favourable opportunity for dollar-based outperformance compared to developed market stocks, excluding the U.S.
- Chinese Fiscal Stimulus: The firm also points to China’s recent pivot towards fiscal stimulus, which could not only boost Chinese firms but also have positive spillover effects across the broader emerging market landscape. The effectiveness of this stimulus, however, will hinge on the extent of China’s commitment to its reflationary policies.
- Market Momentum: There’s already observable positive momentum in the relative performance of EM stocks, a trend that began last year. Alpine Macro suggests maintaining at least neutral exposure to EM stocks, with the potential to increase to an overweight position as conditions continue to develop favourably.
These factors combined suggest a robust environment for growth in emerging markets, making them an attractive investment opportunity in the current economic climate.
