Macroscope | Emerging-market stocks are at bargain prices, but should you buy?

Nicholas Spiro says the sharp sell-off in emerging markets has now created an opportunity for bargain hunters

However, risks and vulnerabilities continue to weigh on sentiment, especially in China, where the yuan is down and capital outflow is growing

Reading Time:3 minutes

Investors talk at a brokerage house in Kaifeng, Henan province. Equities in emerging markets, including China, have become cheap this year. Photo: Reuters

Published: 12:30pm, 2 Nov 2018Updated: 1:20pm, 2 Nov 2018

Following a brutal sell-off that pushed the MSCI’s benchmark Emerging Markets Index down 25 per cent from its peak in late January, signs are emerging that developing-economy stocks are worth buying again.

First, the sharp decline in emerging market currencies came to a halt in mid-August. Since then, the MSCI Emerging Markets Currency Index, a gauge of 25 developing-country currencies versus the US dollar, has been fairly stable despite the renewed strength of the greenback since mid-September.

Second, there have been some encouraging developments in several important emerging markets. Buoyed by more credible policies to curb Turkey’s persistently high inflation, the lira has risen 16.3 per cent versus the dollar since early September, after a summer in free fall.

In Brazil, there has been a sharp rally in the currency and stock markets over the past few weeks. Jair Bolsonaro won the presidential election on Sunday, and investors seemed to have taken heart from his pledge to implement much-needed fiscal reforms.

There have been encouraging developments in Brazil, where far-right lawmaker Jair Bolsonaro has won the presidential election and pledged to implement fiscal reforms. Photo: AFP

Having said that, the overriding factor in the appeal of emerging-market equities is how cheap they have become since the beginning of the year. In contrast, American stocks remain expensive by most measures, despite having fallen steeply in October.

Macroscope | Emerging-market stocks are at bargain prices, but should you buy?

Nicholas Spiro says the sharp sell-off in emerging markets has now created an opportunity for bargain hunters However, risks and vulnerabilities continue to weigh on sentiment, especially in China, where the yuan is down and capital outflow is growing

Nicholas Spiro says the sharp sell-off in emerging markets has now created an opportunity for bargain hunters

However, risks and vulnerabilities continue to weigh on sentiment, especially in China, where the yuan is down and capital outflow is growing