Emerging markets have taken a beating this year, but aside from the short-term developments, there are some interesting long-term trends in play.
For one, EM has grown to account for the dominant share of world GDP.
Longer-term EM equity allocations are likely to grow, and the cycle around this trend will create opportunities for active allocators.
Emerging markets have taken a beating this year on the back of softer China growth, the trade wars, a stronger USD, and Fed tightening… along with a few idiosyncratic issues (Turkey, Argentina, et al). While I think EM still faces a number of headwinds in the short term, I wanted to highlight a few longer-term charts on the representation of emerging markets on the global economic stage, global equity markets, and portfolio allocations.
There’s a lot of debate around emerging markets, even with issues like the difference between EM and DM. And invariably, EM assets fall in and out of favor through the cycle like any freely traded asset market. But there are a couple of key structural trends that don’t appear likely to change anytime soon and will only continue to grow in importance.
1. EM vs. DM – Share of World GDP: The first of these key trends is the rise of emerging markets on the global economic stage. Around the time of the financial crisis, not only was there great upheaval in the global financial markets, but there was a perhaps little-noticed moment of history where emerging markets took the lead. From about 2008 onward, EM took over as the dominant share of world GDP. This is a key event in economic history and will have wide-reaching implications for the path of economic growth, volatility, and capital market opportunities.