In recent months, as the United States, Europe and Japan have continued to wrestle with their various fiscal problems, emerging market economies have shown signs of improvement. It’s no wonder, then, that investors have flocked to emerging markets.
After weak performance through much of 2012, emerging markets gained roughly 1% in November and nearly 5% in December. [New Highs for Emerging Market ETFs]
But now many market watchers are wondering whether the emerging market trade is still a smart one.
In my opinion, the answer is a resounding yes. Here are two reasons why I think there’s room for further emerging market gains in 2013.
Mounting evidence of faster growth: The growth outlook for emerging markets has improved in recent months. While China and other large emerging market countries are highly unlikely to achieve double-digit growth anytime soon, or ever, their growth should be higher in 2013.
Take China. The country’s economic outlook has improved significantly over the last few months. As recently as July, China’s exports were growing at a paltry 1% year over year. As of December, exports were growing 14% from a year earlier. Similarly, Chinese manufacturing gauges have picked up recently and Chinese commodity imports (an important sanity check in a country in which official data is often questioned) have sharply accelerated.