INSIGHTS AND RESOURCES
Emerging Markets: Recent pause cause for alarm?
INSIGHT ARTICLE |
Authored by RSM US LLP
After bottoming in March of 2020, emerging markets (EM) stocks rallied alongside their U.S. and foreign developed counterparts over the balance of the year. The development of multiple COVID-19 vaccinations, coupled with coordinated fiscal and monetary support, led investors (and the public at large) to anticipate a gradual return to normalcy that would prompt consumers around the world take postponed vacations, dine out, and enjoy a host of other activities they had foregone amid the pandemic. Those expectations triggered a global stock market rally.
Though many EM countries lacked the ability to provide fiscal stimulus to the extent of the U.S. and Europe, strong performance was underpinned by a surge in commodity prices expected to provide an outsized benefit to those mostly export-oriented economies. Further, massive fiscal and monetary stimulus in the U.S. helped to put downward pressure on the dollar, adding to domestic investors’ returns.
Turn the page to 2021, and that emerging markets trend has abated somewhat. The U.S. dollar has flatlined, removing the tailwind U.S. investors experienced last year. More importantly, a slower-than-expected vaccination rollout in emerging economies, the emergence of COVID-19 variants, and a resumption of lockdowns in some countries has caused investors to reassess their near-term outlook. Further, surging commodity prices — a boon to EM countries in 2020 — has spurred outsized inflation in food and energy prices that has prompted nine rate hikes among EM central banks in March in April. While higher interest rates attract capital, which can lead to higher long-term economic growth, they also can put downward pressure on equity prices in the near term.
Still, as those countries catch up in the race to herd immunity, a more global cyclical recovery can begin in earnest, which could provide an outsized benefit to the asset class. Performance over the balance of the year may be choppy, but we recommend investors stay the course with their EM allocations. The continually improving economic outlook bodes quite well, and consider that EM stocks have historically witnessed multi-year patterns of outperformance. Since 2000, EM has tended to be the best (or near-best) performing asset class in the years following market shocks (post-dot com bubble [2003-07], post Financial Crisis [2009-12]).
This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, insurance, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. Information has been obtained from a variety of sources believed to be reliable though not independently verified. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. Internal Revenue Service rules require us to inform you that this communication may be deemed a solicitation to provide tax services. This communication is being sent to individuals who have subscribed to receive it or who we believe would have an interest in the topics discussed. Past performance does not indicate future performance. The sole purpose of this document is to inform, and it is not intended to be an offer or solicitation to purchase or sell any security, or investment or service. Investments mentioned in this document may not be suitable for investors. Before making any investment, each investor should carefully consider the risks associated with the investment and make a determination based on the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives.
Tax and accounting services are provided by RSM US LLP, a registered CPA firm. Investment advisory, aggregated reporting, financial planning, retirement plan advisory and other wealth management services are provided by RSM US Wealth Management LLC, an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) and wholly owned subsidiary of RSM US LLP.
RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International.
RSM, the RSM logo and the power of being understood are registered trademarks of RSM International Association.
© 2021 RSM US LLP. All Rights Reserved.
Call us at +1 213.873.1700, email us at firstname.lastname@example.org or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by RSM US LLP and originally appeared on 2021-05-25.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.