The Long-Term Bullish Case for Emerging Markets

Jeremy Schwartz, CFA, Executive Vice President, Global Head of Research

We recently released two “Behind the Markets” podcasts focused on emerging markets, with guests Ruchir Sharma, head of emerging markets and chief global strategist at Morgan Stanley, and Andy Rothman, investment strategist for Matthews Asia. 

Sharma Is Long-Term Bullish on Emerging Markets 

Sharma discussed the ebbs and flows of emerging markets over the last few decades, and in his view, the markets could be setting themselves up for another decade in which valuations support emerging markets outperforming the U.S. Similarly, he thinks the outperformance will not just stem from cyclical sectors but, rather, more domestic demand-oriented sectors, such as the consumer sectors and even financial stocks, which he views as attractive in the long term. 

Rothman: Pay Attention to China’s Growth

Rothman’s long-term view is that China will continue to be a driver of the global economy’s long-term growth, particularly via domestic demand-oriented companies. 

Every year for the last decade, China has accounted for about one-third of global economic growth, which is a larger share of economic growth than the U.S., Europe and Japan combined. In short, as China grows or slows down, so does the global economy. 

Rothman believes it is important to look at China as no longer an export-driven economy, especially in light of the tariff debates. The tariffs are having an impact, but Rothman sees three-quarters of the Chinese growth as being driven by consumption and income growth. What the trade tensions are affecting is investment sentiment, which is pushing the Chinese markets around significantly. 

Timing of a Resolution

Rothman believes that Trump decided last November that a deal with China was better for his re-election prospects than “no deal” after seeing Republicans lose majority control of the House of Representatives. His base case is that we will see a deal sometime in the near future.

Sharma’s Three D’s

Sharma’s book The Rise and Fall of Nations discusses how the global economy is being hampered by what he calls the “Three D’s”: demographics, debt and deglobalization. 

In this next phase of deglobalization, Sharma prefers the countries and companies that benefit from domestic consumption patterns that offer more stable growth and that he also thinks offer better value today. Sharma emphasized some of the opportunities in Eastern Europe as being underrecognized and valuable based on these metrics. 

For two interesting perspectives on emerging markets, check out these great discussions below.

Versions of this article first appeared on the WisdomTree blog on June 11.

Photo Credit: Motohiko Tokuriki via Flickr Creative Commons

Disclosure: Certain of the information contained in this article is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. WisdomTree believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.

About the Author: Jeremy Schwartz, CFA, Director of Research, WisdomTree Asset Management is responsible for the WisdomTree equity index construction process and oversees research across the WisdomTree family. Prior to joining WisdomTree, Jeremy was Professor Jeremy Siegel’s head research assistant and helped with the research and writing of Stocks for the Long Run and The Future for Investors. He is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” Jeremy is a graduate of The Wharton School of the University of Pennsylvania and currently stays involved with Wharton by hosting the Wharton Business Radio program “Behind the Markets” on SiriusXM 111.