Emerging market (EM) equities, mainly comprising India, China, Hong Kong, Taiwan, South Korea, Brazil and Russia, started 2021 on a strong footing, having risen by almost 30.9 percent (in US Dollar terms) after the 2020 US general election. However, the markets corrected by around 10.5 percent mid-Feb, and have remained flat since, raising doubts about the long-term prospects of the basket.
A stronger USD (US Dollar) and weakness in the Asian tech stocks, which comprise 21 percent of the entire MSCI EM index, are the main factors behind the halt in the EM rally. However, analysis confirms that EM’s recent correction is not fundamentally linked, as macro and earnings recovery are still healthy and strong. The EMs’ GDP should continue to see an uptick, and the earnings growth gap between emerging and developed markets should widen in late 2021.