Emerging Markets Outperform During a Volatile Month

​December 2018

Market Environment​

Global equity markets plummeted in December, as illustrated by the -7.57% return of the MSCI World Index, but emerging markets (EM) outperformed with the MSCI Emerging Markets Index declining 2.60%. The second half of the month was particularly volatile as liquidity was thin and U.S. credit spreads widened. The U.S. Federal Reserve hiked the fed funds rate by 25 basis points (bps) for the fourth time in 2018 yet the 10-year U.S. Treasury yield fell again to 2.68%. Uncertainties about the independence of the U.S. central bank surfaced after numerous reports that U.S. President Donald Trump was considering firing the Fed chair. Trade jitters reawakened with the arrest of the chief financial officer of Huawei Technologies Co., Ltd by Canada. The stunning drop in oil prices continued, pushing Brent crude down almost another 10% during the month. 

Within EM, Latin America was the best performing region, driven by Mexico as the Mexican peso appreciated after investors accepted a proposal to buy back airport bonds. It’s not clear how long peso stability will last as President Andres Manuel Lopez Obrador, also known as AMLO, suspended new energy auctions for three years and lawmakers raised the national minimum wage by 16% effective in January. Additionally, the country’s central bank raised its overnight lending rate by 25 bps. Brazil was weak ahead of the inauguration of incoming President Jair Bolsonaro. Investors will be watching his incoming administration for signs of needed structural reform. 

Emerging Europe, Middle East and Africa (EMEA) was the next best performing region but only Poland and the United Arab Emirates generated positive returns. The weakness in oil prices impacted the Russian market while turmoil in Italy took a toll on Greece. The Russian central bank also surprised investors during the month with an unexpected 25 bps rate hike. Also during December the energy minister of Qatar announced that the country would quit OPEC in January after almost 60 years of membership. 
Asia ex-Japan was the worst performing region, dragged down by North Asian markets: China, South Korea and Taiwan. Chinese economic data released during the month continued to show weakness with November exports falling to a low single-digit year-over-year growth rate and retail sales growth falling to only 8.1% year over year. Chinese industrial profits turned negative for November, the first drop since 2015. Indian equities continued to show resilience despite the resignation of India’s central bank governor and the defeat of the ruling party in three key state elections. In Thailand, the election commission confirmed February 24, 2019, as the date for parliamentary elections and the government lifted the ban on political activity. This will be the first election since the military took power in 2014. 


Consensus expectations for 2018 EM earnings growth have decreased a percentage point to 13% while 2019 estimates have moved 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. At month’s end, a little more progress had been made between the U.S. and China in settling their trade dispute with a pending delegation meeting of the two countries in China. 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 actions unfold. In closing, there has been no change in the longer term structural support for EM. The forward price-to-earnings (P/E) multiple discount for EM equities relative to developed markets has narrowed slightly since the end of November to 27%.​

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.

Huawei Technologies Co., Ltd. represented 0.00% of Alger assets under management as of December 31, 2018.

The forward price-to-earnings (P/E) is the current market price of a company divided by its expected earnings during the next 12 months.

This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares.
Fred Alger & Company, Incorporated 360 Park Avenue South, New York, NY 10010 / www.alger.com 800.305.8547 (Retail) / 212.806.8869 (Institutional)​​