Emerging Markets Gain as Federal Reserve Turns Dovish

​March 2019

Market Environment​

The MSCI Emerging Markets Index generated a 0.9% return during March but trailed the 1.4% return of developed markets as measured by the MSCI World Index. During the month the U.S. Federal Reserve confirmed its dovish turn with its dot plot median indicating no hikes for 2019. Worries about weak global growth seemed to be confirmed at month’s end by the inversion of the U.S. yield curve.

For a second straight month, Asia ex-Japan was the only region to generate positive performance, this time led by China and India. To help support the domestic economy, Chinese officials approved cuts to value-added taxes (VAT) across a large swath of industries. Meanwhile, Chinese and U.S. negotiators continued to make progress on trade negotiations and reports continued to circulate that President Xi could come to the U.S. in late spring or early summer to sign a trade deal with President Trump. Thailand held long-awaited elections and the election commission announced preliminary results with the military affiliated Palang Pracharath Party, or PPRP, winning the majority of votes.

Emerging Europe, Middle East and Africa (EMEA) was the next-best performing region, led by Greece, Hungary and Russia. In Turkey the central bank unexpectedly tightened its monetary stance suspending one-week repo auctions as the lira began depreciating once more ahead of municipal elections. In South Africa the state utility giant, Eskom, continued to implement load shedding. Despite higher electricity prices contributing to inflation, the country’s central bank kept rates on hold. Moody’s postponed a ratings update on South Africa’s sovereign debt until November and kept its current outlook in place while also stating that Eskom’s debt, estimated at 8% of GDP, was troubling.
Latin America was once again the worst performing region, dragged down by Brazil as economic activity there underwhelmed and political noise increased. Former Brazilian President Temer was arrested in connection with the Lava Jato corruption probe, although later released. Tensions between the executive and legislative branches increased and spilled over to social media, creating a less than conducive environment for structural reform to wind its way through the legislature. Mexico’s economic activity appears to have stabilized but S&P lowered its outlook for the country’s sovereign debt, in part, over concerns for the finances of Pemex, the state oil company. Colombia was the region’s outperformer for the month despite the economic strains imposed by deteriorating conditions next door in Venezuela.


EM consensus earnings growth estimates for 2019 continue to hover around 6% with early estimates for 2020 suggesting 13% earnings growth. The asset class continues to look undervalued although less so after the first quarter rally. Challenges in Europe persist, as evidenced by the inability of U.K. lawmakers to approve a definitive plan to leave the European Union (E.U.). Uncertainty about the matter is likely to continue in the near term with a new Brexit deadline approaching and E.U. parliamentary elections scheduled for May. Progress on trade negotiations between the U.S. and China is on pace and negotiations could partially resolve as we move into summer. 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. There has been no change in the longer term structural support for EM. The forward price-to-earnings multiple discount for EM equities relative to developed markets ended the quarter 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 April 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 risks, and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. A significant portion of assets will be invested in technology companies, which may be significantly affected by competition, innovation, regulation, and product obsolescence, and may be more volatile than the securities of other companies. Foreign securities and Emerging Markets involve special risks including currency fluctuations, less liquidity, inefficient trading, political instability, and increased volatility.

The Morgan Stanley Capital International (MSCI) Emerging Markets Index (gross) 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, Pemex, and Moody’s represented 0.0% of Alger assets under management as of March 31, 2019.​

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