Emerging markets equities performance in the third quarter was overwhelmed by macroeconomic factors, including weakening growth data, sporadic trade negotiations, and considerable geopolitical uncertainty. Most of the quarter’s losses were posted in August, when equities sold off and bond yields fell to historic lows as investors feared a global recession was imminent. While markets recovered somewhat in September, the MSCI Emerging Markets Index ended the quarter down 4.3% in US dollar terms.

The quarter’s negative performance reflected a broader trend that has emerged in 2019: Investors appear to be losing confidence that globalization—the engine of emerging markets development over the past several decades—is sustainable. Global consensus on the benefits of trade has collapsed, and populist parties have become political forces around the world. Emerging markets equities, compared to developed markets equities, have lagged year to date (see Exhibit). In addition, investors were unsettled by specific events, which we detail below, especially in Argentina and Saudi Arabia.

Exhibit: Global Equity Market Performance Has Diverged in 2019

We believe, however, that investors appeared to disregard factors in the quarter that could support the economy and sentiment going forward. These include synchronized easing from central banks in both developed and emerging markets, growing potential for a US-China trade deal, and reform in parts of the global economy. The MSCI Emerging Markets Index—even after recent underperformance—remained 5.9% higher year to date. We also see positive signs in a number of specific emerging markets, such as Brazil, where reforms could help unshackle growth potential.

The preceding is an excerpt from our Outlook on Emerging Markets. Read the full paper.

Important Information
Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries.
An investment in bonds carries risk. If interest rates rise, bond prices usually decline. The longer a bond’s maturity, the greater the impact a change in interest rates can have on its price. If you do not hold a bond until maturity, you may experience a gain or loss when you sell. Bonds also carry the risk of default, which is the risk that the issuer is unable to make further income and principal payments. Other risks, including inflation risk, call risk, and pre-payment risk, also apply. High yield securities (also referred to as "junk bonds”) inherently have a higher degree of market risk, default risk, and credit risk. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries. Derivatives transactions, including those entered into for hedging purposes, may reduce returns or increase volatility, perhaps substantially. Forward currency contracts, and other derivatives investments are subject to the risk of default by the counterparty, can be illiquid and are subject to many of the risks of, and can be highly sensitive to changes in the value of, the related currency or other reference asset. As such, a small investment could have a potentially large impact on performance. Use of derivatives transactions, even if entered into for hedging purposes, may cause losses greater than if an account had not engaged in such transactions.
The performance quoted represents past performance. Past performance does not guarantee future results.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
The MSCI Emerging Markets Index is a free-float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI Emerging Markets Index consists of 26 emerging markets country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. The index is unmanaged and has no fees. One cannot invest directly in an index.
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This document reflects the views of Lazard Asset Management LLC or its affiliates ("Lazard”) based upon information believed to be reliable as of the publication date. There is no guarantee that any forecast or opinion will be realized. This document is provided by Lazard Asset Management LLC or its affiliates ("Lazard”) for informational purposes only. Nothing herein constitutes investment advice or a recommendation relating to any security, commodity, derivative, investment management service, or investment product. Investments in securities, derivatives, and commodities involve risk, will fluctuate in price, and may result in losses. Certain assets held in Lazard’s investment portfolios, in particular alternative investment portfolios, can involve high degrees of risk and volatility when compared to other assets. Similarly, certain assets held in Lazard’s investment portfolios may trade in less liquid or efficient markets, which can affect investment performance. Past performance does not guarantee future results. The views expressed herein are subject to change, and may differ from the views of other Lazard investment professionals.
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