Relief Rally and Strong Fundamentals
Drive Market Gains​​
November 2018​​​
Market Enviroment​

The MSCI Emerging Markets Index generated a strong 4.1% return in November and outperformed the 1.2% return of developed markets as measured by the MSCI World Index. 
During the month, U.S. Federal Reserve Chairman Jerome Powell hinted that the central bank’s monetary tightening may end earlier than previously anticipated. Additionally, the 10-year U.S. Treasury yield fell from a seven-year high to end the month under 3% and Brent oil crude declined 11%. Even uncertainties regarding trade diminished slightly as President Donald Trump and Chinese President Xi Jinping were scheduled to dine together and discuss trade issues at the G-20 summit in Argentina. Nevertheless, negotiations between the U.S. and China appear to remain at a standstill.

From a country perspective, Turkey led emerging markets (EM), followed closely by Indonesia. Regarding regions, Asia ex-Japan was the best performer as optimism surrounding a temporary trade truce between the U.S. and China grew and Brent’s price fall amplified currency gains for oil importers Indonesia and India. Similar to last month, Chinese economic data released during November was weaker than anticipated with both social financing, which comprises the aggregate volume of funds provided by China’s domestic financial system to the private sector, and loan growth trailing expectations. In Taiwan, local elections caused the ruling Democratic Progressive Party (DPP) to suffer a massive loss and the Kuomintang party (KMT) to gain significantly. The KMT is seen as more pragmatic in Chinese relations and many observers view the results as a precursor to the 2020 elections.

Emerging Europe, Middle East and Africa (EMEA) was the next best performing region with Turkey, Hungary and Poland all outpacing the overall MSCI Emerging Markets Index. The weakness in oil prices, however, contributed to the underperformance of Russian equities. At month end, the Russian military opened fire on Ukrainian naval vessels and seized three ships in the Sea of Azov. The U.S. legislature continues to debate and in some instances approve sanctions targeting Russia. In Turkey, sanctions that the U.S. placed on individuals and some companies after the arrest of a U.S. pastor earlier in the summer were lifted. Monetary policy was quiet, except for South Africa and the Czech Republic, where central banks hiked rates during the month.

Latin America was the worst performer with only Chile generating gains. Within the region, Mexico was the worst performer as it has been beset by policy uncertainty following the cancellation of plans to build the Mexico City New International Airport. Uncertainty appeared to increase after a second national consultation showed support for various projects, including the construction of an oil refinery. Comments by newly elected legislators on capping bank fees and possibly nationalizing the private pension system also unnerved markets.

Outlook

Consensus expectations for 2018 EM earnings growth have declined one percentage point to 13% while 2019 growth estimates have declined to slightly below 10%. We believe the asset class continues to look undervalued. Challenges in Europe continue to materialize with great regularity and that is likely to persist in the near term. There appears to be little progress between the U.S. and China in settling the ongoing trade dispute although a pending meeting between the two presidents could signal the beginning of talks. Our view remains that a bourgeoning trade war between the U.S. and China would not be in either country’s best interest. Investors should continue to watch how these developments unfold. In closing, there has been no change in the longer term structural support for emerging markets. The forward price to earnings multiple discount of EM equities relative to developed markets has held steady at approximately 28%.​



Fred Alger & Company, Incorporated is the parent company of Fred Alger Management, Inc. The views expressed are the views of Fred Alger Management, Inc. as of November ​2018. These views are subject to change at any time and should not be interpreted as a guarantee of the future performance of the markets, any security or any strategies managed by Fred Alger Management, Inc. These views should not be considered a recommendation to purchase or sell securities.

Risk Disclosure:  Investing in the stock market involves gains and losses and may not be suitable for all investors. The value of an investment may move up or down, sometimes rapidly and unpredictably, and may be worth more or less than what you invested. Stocks tend to be more volatile than other investments such as bonds. Growth stocks tend to be more volatile than other stocks as the prices of growth stocks tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Investing in companies of all capitalizations involve the risk that smaller issuers may have limited product lines or financial resources, lack management depth, or have more limited liquidity. Special risks associated with investments in emerging country issuers include exposure to currency fluctuations, less liquidity, less developed or less efficient trading markets, lack of comprehensive company information, political instability and differing auditing and legal standards, and securities of such issuers can be more volatile than those of more mature economies.

​​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 World Index is a broad global equity benchmark that represents large and mid-cap equity performance across 23 developed markets countries. Investors cannot invest directly in any index. Index performance does not reflect the deduction for fees, expenses, or taxes. 

This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares.
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