Investors expect further rise in emerging market equities

EVEN though a steady stream of money has flowed out of US stocks into overseas markets, investors expect European and emerging market equities to rise further, supported by expectations for economic growth and accommodative central bank policies.

US fund investors put the most money into overseas equities since the second quarter in 2015, with more than half of the $90 billion (R1.17 trillion) outflows for the first half coming in the second quarter, according to preliminary Lipper data.

The MSCI Emerging market index has risen 17 percent in the year-to-date compared with a 4.9 percent rise for Europe’s Stoxx 600 index and the S&P 500 index’s 8 percent gain.

Since emerging market central banks have been lowering interest rates and their currencies had been falling in recent years this was now helping to boost economic growth, according to Northwestern Mutual’s Chief Investment Strategist, Brent Schutte.

But still the emerging market index is roughly 25 percent off its all-time high reached in 2007 while the Stoxx 600 is 8 percent off its record high. In comparison the S&P 500 is just 1 percent below its latest record, reached last month.

Record highs

The overseas indexes could reach new record highs over the next two years, according to Jack Ablin, chief investment officer at BMO Private Bank in Chicago citing improving growth.

“Finally the recovery has really picked up in the rest of the world. It’s moving along faster than the US, because it’s trailed. The US is further along, because the central bank here really was aggressive in quantitative easing first,” said Ablin.

For the second quarter, revenue for companies in European markets are expected to grow 5.8 percent compared with 4.6 percent for S&P 500 index companies and 11.5 percent for emerging markets in the Asia Pacific Region, according to data.

Earnings estimates for European companies for the period stand out with a 13.5 percent jump seen compared with 8 percent growth expected for the S&P 500 and 6.4 percent for emerging markets.