Speaker: Thomas S. White, Jr. Chairman, CIO Thomas White International
In Thomas White's January Emerging Markets outlook, we projected that 2015 would include a major surprise – that the MSCI China Index would outperform the S&P 500. As of April 17, this index has exceeded even our expectations, returning 25.5% versus 1.7% for the S&P.
The MSCI Emerging Markets Index has also surprised most investors, returning 9.5%. Although Investors recognize the long-term above average growth potential in these countries, they have been holding back, concerned they will perform poorly when the Federal Reserve eventually raises interest rates. After all, this is what occurred during the “2013 taper tantrum” when the Fed mentioned they intended to begin tapering bond purchases, thus ending the policy of Quantitative Easing.
We feel this concern is unwarranted. Investors are failing to recognize the major differences between 2013 and today’s conditions:
- The Fed is now intent on avoiding the disruption they caused before. It has stated increases will be gradual, telegraphed well in advance, and spread over several years.
- Also, recognizing the Fed will eventually tighten, investors have already depressed the currencies of the vulnerable commodity-exporting countries.
- A number of sizable EM countries like China, Korea, and Taiwan, have stable currencies due to their strong reserves and positive current account balances.
Our confidence in the EM asset class also reflects our belief in the long-term growth prospects of China, India, South Africa and Indonesia. These counties are especially attractive now as they are benefiting from today’s low energy prices. What’s more, their trading prospects have improved given America’s economic recovery.
- China’s government has no peers when it comes to its record of economic expansion. Even after its markets recent strong performance, we believe many of China’s companies are still attractive given their growth potential.
- India and Indonesia, with the potential inherent in their large populations, now appear ready to make major strides forward.
- South Africa has a number of capable global companies that have assumed leadership roles in fast growing Sub-Saharan Africa.
At Thomas White, we have been investing in Emerging Markets since 1998. We encourage investors to reassess the potential in what we feel is a very compelling asset class.
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This article is for informational purposes only. This article is not intended to provide tax, legal, insurance or other investment advice. Unless otherwise specified, you are solely responsible for determining whether any investment, security or other product or service is appropriate for you based on your personal investment objectives and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation. The information contained in this article does not, in any way, constitute investment advice and should not be considered a recommendation to buy or sell any security discussed herein. It should not be assumed that any investment will be profitable or will equal the performance of any security mentioned herein. Thomas White International, Ltd, may, from time to time, have a position or interest in, or may buy, sell or otherwise transact in, or with respect to, a particular security, issuer or market on our own behalf or on behalf of a client account.
FORWARD LOOKING STATEMENTS
Certain statements made in this article may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements.
