GLOBAL EMERGING MARKET EQUITY
Three-year sector performance
Source: FE Analytics( 31 Mar’ 13 to 31 Mar’ 16)
Three-year annualised return / volatility
SECTOR ANALYSIS
Falling about 15 % over the three-year period, the sector significantly underperformed the developed markets. Most funds in the sector delivered negative returns for the period, although smaller caps and frontier marketfocused funds did tend to perform better. However, it is still somewhat surprising to see dividend and income-focused funds generally failing to protect capital on the downside, ranking lower down the performance table. Overall, funds that maintained a stronger focus on commoditydriven economies have been hit hardest due to the sharp correction in commodity prices and the region’ s weak currencies relative to the strong US dollar.
MARKET REVIEW
Concerns over China’ s economic slowdown have plagued the emerging market economies. Slower Chinese export and import growth impact emerging Asian countries because they are major trading partners. Also, the transition to a consumer-led economy points to less demand for commodities, putting downward pressure on the commodity-oriented EM economies. In addition, the normalisation of the US monetary policy has triggered capital outflows from the emerging economies, to add further depreciation pressures on these currencies. Overall, performance did vary across the constituent markets due mainly to country / regional specific events such as the 2014 India election, which raised the prospect for reforms, political turmoil in Thailand, the Russia / Ukraine conflict and Brazil’ s corruption scandal.
MARKET OUTLOOK
Emerging market equities are now trading at a considerable discount versus developed market equities, and do present value play opportunities. However, value traps could exist in certain areas due to the structural changes taking place in many of these economies. Overall, emerging Asia economies are likely to benefit from lower commodity prices and rising consumer demand as China continues its transition.
Provided by FE Advisory Asia as of 31 May’ 16
Source: FE Analytics( 31 Mar’ 13 to 31 Mar’ 16) www. fundselectorasia. com