Exploit VIX Spike to Buy Emerging-Market Stocks, Ashmore Group Says

  • Twelve-month stock returns after peaks average 38 percent
  • Volatility increases rarely have negative impact for stocks

Stocks Surge as Market Volatility Continues

When the VIX gets going, so do emerging-market stocks.

That’s the message from Ashmore Group, which says the recent global selloff has led to better valuations in an asset class that’s already benefiting from strong inflows and an improving growth outlook.

Historically, the larger a VIX spike, the bigger the immediate plunge in emerging-market equities. A year later, though, it usually marked the right time to buy: 12-month returns after the five biggest volatility surges in the past decade have averaged 38 percent. Rarely has a VIX spike led to any lasting negative repercussions for developing nations, said Jan Dehn, Ashmore’s head of research.

"A strategy of buying EM during risk-off episodes means entering the asset class at a time when markets are overreacting to the downside," he wrote in a note Tuesday. "It exploits one of the most irrational investment practices, namely to knee-jerk sell everything in EM in response to risk-off episodes."

The $65 billion investment firm’s Emerging Market Total Return Fund has beaten 97 percent of peers during the past five years, although so far this year it’s ahead of only 7 percent of them.

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