As Market Turbulence Returns, Emerging Stocks May Become Haven

  • Developing-nation equities lead volatility-adjusted returns
  • With bond selloff deepenening, stocks are proving safer bet
Mark Wilson, chief executive officer at Aviva, says we’re not in a bear market yet.

Emerging-market stocks may be one of the safest places to ride out the coming storm.

As 2018 brings back wilder swings to markets, developing-nation equities are beating other asset classes from U.S. stocks to gold, bonds and commodities when returns are adjusted for volatility. This despite a more-than-40 percent increase in emerging-market price turbulence this year, and a weekly loss that matched the worst since the election of Donald Trump.

Emerging Haven

Developing-nation stocks outperform other assets as market turbulence returns

Source: Bloomberg

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After a scorching start to the year, global markets are turning cautious as concern grows that risk-seeking and the hunt for greater yields have gone too far. Technical signals point to near-term losses, and volatility gauges are surging. The Chicago Board Options Exchange SPX Volatility Index, known also as the VIX, or fear gauge, has soared 68 percent this year and similar measures for Europe and emerging markets have jumped at least 42 percent.

If bonds extend declines and a weakening dollar prompts the Federal Reserve to hasten monetary tightening, volatility could rise further and investors may start looking for assets that yield better risk-adjusted returns.

Emerging-market stocks are cheaper today than they were before the U.S. presidential election, when compared with U.S. and developed-market equities. The lower valuations and growing earnings estimates may give the comfort investors need in times of turbulence.

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