Robeco: Be Patient, EM Fundamentals Will Pay Off
U.S.-based investors tend to be biased to their home country. The U.S. is a developed country, with strong rules for its capital markets. However, that’s often meant missing out on superior returns overseas.
Of course, international investing can prove risky as well. That’s because it adds in an element of foreign exchange risk and geopolitical risk. Today, those risks look more moderate compared to the rise of international investing in the 1990s.
One positive trend right now is that emerging countries didn’t stimulate their economies as much during the pandemic. As a result, they have lower inflation than many developed countries right now. Plus, real interest rates are so high in some countries that they can start easing now.
For instance, Brazil has interest rates of 8 percent, and low enough inflation to start lowering interest rates now.
Plus, many countries have massive foreign exchange reserves and have trade surpluses. Those polices should lead to strong economic returns for those countries. That includes nations such as Thailand, Taiwan, and South Korea.
Of course, there are some countries with unstable currencies or governments that investors may want to avoid now. That includes Turkey and Argentina, both of which are experiencing monetary challenges.
In the meantime, investors are buying companies at about a 30 percent discount to earnings relative to developed markets. That’s a big valuation gap, and one that can close over time as emerging markets experience faster growth.
