Milltrust Emerging Markets Commentary – Oct 2020

October 15, 2020

BY Eric Anderson

A faster‐than‐expected economic recovery lifted emerging‐market assets during the third quarter, as more coronavirus cases failed to prompt another round of lockdowns. Strong manufacturing data in China led the way, where hopes are rising that China’s rebound will pull along the rest of the region.

In terms of the bigger picture, historically, Emerging Markets (EM) have been able to substantially outperform the Developed Markets (DM) universe when both economic and earnings momentum are superior. As a whole, we are seeing evidence that earnings are currently recovering faster in EM than DM in both local and common currency terms, while economic momentum remains roughly in line between the two which helps explain why EM outperformance has not yet taken shape. Perhaps renewed lockdowns in Europe and elsewhere will translate into weakening economic momentum in the DM universe and lead to a rotation into EM?

We expect this theme to continue in the next quarter with the East Asian markets of South Korea and Taiwan to continue to appeal as they benefit from the China rebound and the uptick in global growth. Both have demonstrated a clear economic recovery and superior earnings momentum. Meanwhile, there are also some incredible value plays in South Africa and Russia while Brazil’s economic re‐opening will lead to some stronger earnings for corporates and improved economic activity.

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