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But emerging markets may have turned a corner based on the most recent data. Investors just need to take a look at how the American Funds New World A Fund (NEWFX) has performed. It’s only up 4.10% year-to-date, but after falling to $44.14 in mid-February, the fund has rebounded to over $52 – an 18% gain in just a few months.
Commodity prices are beginning to stabilize, which is positive for emerging markets. In addition to oil, gold, silver, copper and steel have started seeing a rise in values. Chinese imports rose 5.1% year-over-year in May, well ahead of economists’ prediction of -2.5%.
The credit environment looks good for emerging market economies too. The slow pace that the Federal Reserve has put on raising interest rates means that loosening credit could spread to other markets. Easing conditions could hit Asia and Latin America soon – a marked difference from the beginning of the year, which suggested that credit tightening was inevitable.
Last Friday’s weaker-than-expected payroll data made it very unlikely that an interest rate hike will happen this month, as hinted in the Fed’s earlier statement. Now it seems to be pushed back to next month at the very least.
All the bad news appears to have been priced into emerging market funds, so any good news translates into gains almost immediately. Supply and demand imbalances are starting to even out, while disinflation, another concern earlier this year, appears to be off the table. Going forward, expectations for growth in emerging markets should only get stronger.
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