Will the Emerging Market Equity Rally Continue?

April 15, 2016

For this week’s chart, we look at the year-to-date return stream of emerging market equities, as measured by the MSCI Emerging Markets (“EM”) Index, which has been on a wild ride as oil prices fluctuated over the first three months of the year.

After reaching their 2016 low in the middle of January, emerging markets embarked on a sharp rally in the second half of February that continued through March and early April. On February 10th, due to concerns about the impact of a further rate hike on both domestic and foreign economies, Federal Reserve Chair Janet Yellen signaled postponement on the March rate hikes. The postponed rate hike decision coupled with continued weakness of the dollar and stabilization of commodities led to the rally starting on February 12th.

Earlier this week, China released positive upbeat news, announcing its exports rose 11.5% compared to a year earlier and surpassing analyst expectations which led to a strong April start for emerging market equities. As volatile as this first quarter of 2016 was, we frequently remind clients of the importance of having a long-term approach to investing as we have seen the EM index swing from significantly negative in January to +6.7% year to date as of April 13th. Certainly, EM investments will demonstrate elevated volatility across market cycles, but it is critical to maintain a long-term focus on their performance as it relates to total portfolio returns.