⏳ Final hours! Save up to 60% OFF InvestingProCLAIM SALE

EM stocks could surge. Here's why

Published 10/17/2024, 12:15 PM
Updated 10/20/2024, 06:00 AM
© Reuters.
MSCIEF
-

Investing.com -- Emerging market equities are primed for a strong rally, according to a recent note from Alpine Macro. 

Several key factors, including a cyclical profit upswing, policy easing, and undervaluation, are aligning to create a favorable environment for EM stocks to outperform their developed market counterparts, according to the firm.

Alpine Macro points to improving global manufacturing and increased capital spending in non-tech Asian economies as critical drivers of the expected profit recovery. 

Additionally, EM central banks are moving toward further monetary easing, which should provide additional tailwinds. 

"EM firms’ profits are poised for a strong cyclical rebound, underpinned by an upswing in global manufacturing, further EM monetary policy easing, and accelerating capital spending in non-tech Asian economies," Alpine Macro states.

China's recent shift toward fiscal stimulus is said to add to the bullish case. 

"Chinese policymakers are in the early stages of a reflationary push, with more fiscal measures likely on the way," adds the firm. 

They believe that aggressive stimulus measures could lift earnings not only for Chinese firms but also for companies across the broader EM landscape.

Furthermore, Alpine says that EM equities are currently undervalued, which provides a solid foundation for outperformance in dollar terms.

"EM equities and currencies are markedly undervalued, providing a solid foundation for dollar-based outperformance against DM ex-U.S. stocks," Alpine explains. 

However, the extent of this rally will depend on how far China is willing to go with its fiscal efforts. "Return upside will be dependent on how thoroughly China adopts a 'whatever it takes' approach on reflation."

Alpine Macro argues that the relative performance of EM stocks is already improving. 

"EM relative equity performance is turning a corner," the analysts write, highlighting the positive momentum since last year. With the right conditions in place, Alpine recommends maintaining at least neutral exposure to EM stocks while preparing to go overweight as conditions evolve.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.