Investors have pared down their exposure in the developed markets due to rising instability in US President Donald Trump’s fledging presidency.
As the developed markets have been grappling with political turmoil, the emerging market equities have outperformed their developed counterparts. The developed market valuations are expensive right now, and global investors have been hesitant to add on to their positions. According to a report by DBS Wealth, investors have pared down their exposure in the developed markets due to rising instability in US President Donald Trump’s fledging presidency. Further, easing of the tensions in North Korea has caused the investors to look for cheaper exposures to equities, which has also played a part in the outperformance. Explaining about the developments in the currency market front, DBS Wealth says that the US Dollar Index (DXY) has seen a massive correction this year and the prevailing dollar weakness will have meaningful implications on the earnings trajectory of US corporates.
Yesterday, the S&P 500 lost 0.65% amid pullback in energy and healthcare stocks and Global equities, as represented by the MSCI All-Country World Index, lost 0.15% with investors reducing their exposures in developed market equities. Explaining the reason for such an abysmal performance, the report says that sentiment took a major hit on the back of Donald Trump’s failure to denounce the white supremacist violence in Charlottesville,a move which has since resulted in the dissolution of two business advisory council.
Further, the terrorist attack in Barcelona added to the panic selling in financial markets. Despite weakness in Developed Market equities, Emerging Market ones managed to notch a 1.61% in gains, says the report.
Mark Mobius, the emerging markets champion believes that the valuations and sentiment continue to be supportive of emerging markets. In a recent blog, the executive chairman of Templeton Emerging Markets Group said that the first half of 2017, has been bright for emerging markets.
In the blog, he points out that MSCI Emerging Markets Index is up by 18.6% in year as compared to 11.02% gain in the MSCI World Index. Mobius believes that the factors which investors have historically found attractive about the asset class have come back into play, including stronger earnings growth and robust consumer trends. He calls it the early innings of the emerging-market earnings growth upturn, suggesting that the asset class has a lot of steam left.