Do Emerging Market Equities Have Further Upside?

February 24, 2017 | David Hernandez, CFA, Director of Traditional Manager Search

Through the end of January, emerging market equities are up 25.4% on a trailing 12-month basis. This asset class has benefitted from several changes to the macro-economic environment: stronger commodity prices, more stable currencies, and a better growth outlook. In addition to these favorable changes, company fundamentals have also shown strong signs of improvement. This week’s chart displays earnings per share (EPS) of the MSCI Emerging Markets Index.

Since 2013 earnings have been on a sharp downturn but based on forward estimates they appear to have bottomed in 2016. Not surprisingly, much of the initial resurgence has come from the commodities space, however, improved earnings revisions have broadened to other sectors. This is a promising trend for investors and supports further upside potential for this asset class.