Misperceptions about the emerging markets are clouding investor sentiment, William Blair portfolio manager Todd McClone tells Professional Planner.
The underperformance of emerging markets in the wake of global economic change is making investors nervous, says McClone, but the situation may not be all doom and gloom. That’s because emerging markets have unique characteristics that make them react to economic change differently from other asset classes.
As an example, McClone tells Professional Planner that a headline such as “End of the Commodity Boom” is daunting to investors. “But when you understand what this means for emerging markets, you can see they have unique traits that may in fact reduce or further explain this impact so that investors don’t become underweight to the sector,” says McClone.
In the interview, McClone provides several reasons why he believes that the end of the commodity boom doesn’t spell doom for emerging markets:
- The impact of commodity sectors on emerging market equities has virtually already played out
- There are far more emerging markets that are beneficiaries of weaker commodity prices than those that are not
- The general perception that emerging markets and commodities are highly correlated is too simplistic.
McClone has written a more detailed blog post on the collapse of the commodity complex, and discusses disappointing economic growth in emerging market countries, fears of a hard landing in China, and the potential impact of U.S. interest-rate hikes and a stronger U.S. dollar on emerging markets in four recent blog posts.
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