Global Equities: Why it's time to rethink

KEY POINTS:

• Emerging market fundamentals are about as dispersed as they have been for two decades. You only need to look at economic growth rates by individual country to see that they cannot be viewed under one singular homogenous banner any more.
• While region and country-level comparisons are important in this new era of emerging market investing, we would also encourage investors to look at sector and industry dispersion when informing a view of change within and across emerging markets.
• While we have high conviction in our emerging market holdings today, if we had to provide one clear and succinct guide to investors seeking to understand emerging markets today, the first step is to ask the question “where is there real change and opportunity?”

Why do we care to address complexity and take the hard road when asked what sounds like a simple question? Because emerging market fundamentals are about as dispersed as they have been for two decades, and this is important. Put another way, the point of maximum fundamental correlation (remember the days of the BRICs ascending as one) was reached some time ago but has now passed, leaving dispersion and opportunity but no lack of confusion in its wake.

Why did this happen? There are many reasons, but most notable is China’s industrialization phase moving on, thus ending the commodity supercycle that, as a byproduct, created high economic correlation between China and major emerging market commodity producers. In addition, the developed world’s growth struggles since 2008 have also muted the secular export theme within the emerging world, leading us to draw a conclusion that emerging market fundamentals have evolved, and evolved for good. Rather than looking back hoping for the good-old correlated times to return, it is important to understand the dimensions of change across and within the emerging world in order to achieve investment success.