Monday, 20 August 2018

As S&P 500 nears record high, emerging markets near bear market

There is a clear divergence between the fortunes of the US stock market and emerging markets.

The S&P 500 rose 0.6 percent to 2,850.13 to leave it less than 1 percent below its record high of 2,872.87 set in January.

In contrast, the MSCI Emerging Markets index has dropped 19.8 percent from a peak in January, a degree of decline that is just below the 20 percent threshold that is generally considered to represent a bear market.

A stronger US dollar, trade tension and, most recently, concerns over Turkey have weighed on emerging market stocks.

Some analysts think that the decline has created a buying opportunity.

“Despite the Turkey situation, EM broadly has many solid fundamentals, including economic growth, favorable demographics, and attractive valuations. We look for an eventual compromise on trade, suggesting the potential for a pivot in EM performance,” wrote John Lynch, chief investment strategist for LPL Financial.

Richard Turnill, BlackRock’s global chief investment strategist, wrote that emerging-markets “offer attractive compensation for risk”.

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