Emerging Markets: Asian Equities Gain as Trade Worries Moderate

​February 2019

Market Environment​

Global developed equity markets continued to advance in February while emerging markets (EM) were virtually flat. For the month, developed markets, as measured by the MSCI World Index, gained 3.1% compared to the 0.2% return of the MSCI Emerging Markets Index. The recent U.S. Federal Reserve’s dovish turn and the de-escalation of U.S. and China trade tensions supported equity markets during the month. Commodities continued moving higher with crude oil prices and industrial metals ending the period strongly.

Asia ex-Japan was the only region that generated gains for the month, led by China and Taiwan. Chinese and U.S. trade negotiators made progress with the White House administration officially delaying the start of additional tariffs past the March 1 deadline. Widespread reports that President Xi Jinping may come to the U.S. in late March to sign a trade deal with President Trump also supported optimism. India’s central bank surprised markets with a 25 basis point (bp) rate cut in February while later in the month the country’s relations with Pakistan deteriorated as India launched airstrikes following an earlier Kashmir bombing attack. Elsewhere in Asia, South Koreans did not expect much from the U.S.-North Korea summit, according to local press reports, but were nevertheless surprised when that summit was cancelled early.​

Emerging Europe, Middle East and Africa (EMEA) was the next best performing region led by Greece, Egypt and the United Arab Emirates. In Egypt, the parliament approved constitutional changes removing term limits for President Abdel Fattah el-Sisi. The matter is likely to go to a referendum before Ramadan. Also in EMEA, Russian equity markets were weak despite rising crude prices. The weakness may have resulted from U.S. legislators talking about renewing sanctions against Russia. In South Africa, ongoing financial worries about state utility company Eskom heightened the probability that the sovereign could suffer a ratings downgrade.
Latin America was the worst performing region, dragged down by its two largest markets, Brazil and Mexico. Brazilian President Jair Bolsonaro was released from the hospital after surgeries on knife wounds he received when he was assaulted during his presidential campaign. Shortly after leaving the hospital, Bolsonaro released his pension reform proposal. Investors are concerned that positive measures in the proposal will get watered down as negotiations begin with the legislature. Mexican assets were weak following rating agency Fitch Company’s downgrade of state-owned energy company Pemex. Colombian markets were strong, likely supported by the continued rise in energy prices. The Colombia press was very focused during the month on deteriorating economic and political conditions next door in Venezuela as a number of countries recognized Juan Guaido as the country’s president and humanitarian aid piled up on the country’s border.


The consensus estimate for EM 2019 earnings growth now hovers at 6%, down from the 7% year-over-year estimates at the end of January. Early estimates suggest earnings may grow 13% in 2020. The asset class continues to look undervalued although less so after the January rally and the recent decline in estimated earnings growth. Challenges in Europe continue to materialize with great regularity and they are likely to persist in the near term with new Brexit deadlines approaching and European Union parliamentary elections scheduled for May. More progress appears to have been made between the U.S. and China in recent trade discussions and there is now talk of a March summit between the two leaders. Our view remains that a burgeoning 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 ended the month close to 22%. ​​

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 February 2019. 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 involves 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.

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.​

Eskom, Fitch Ratings Company and Pemex represented 0.0% of Alger assets under management as of Feb. 28, 2019.

Fred Alger & Company, Incorporated 360 Park Avenue South, New York, NY 10010 / www.alger.com 800.305.8547​ (Retail) / 212.806.8869 (Institutional)​​