The “3 C’s” Driving Emerging Markets

The Weekly Chart: Emerging Markets & Commodities Linked

Source: Thomson Reuters Datastream, Riverfront Investment Group. Data as of 8/19/16. Past performance is no guarantee of future results. It is not possible to invest directly in an index. The Bloomberg-Spot Commodity Index measures the price movements of commodities included in the Bloomberg Commodity Index and select subindexes. It does not account for the effects of rolling futures contracts or the costs associated with holding physical commodities and is quoted in USD. It is not possible to invest directly in an index.


Clearly, our 3 C’s explanation is a simplification of sorts (strategists have never met a catchy acronym that they don’t like). Other positive near-term drivers of the EM story include the fact that EM economies are not likely to be as affected as developed markets by Brexit issues and controversies surrounding European and American politics. In addition, in EM regions such as Latin America and India, there is growing potential for positive structural reforms, though lasting reform has often proven elusive in developing countries. Eventually, we believe that for the cyclical (near-term) bull market in EM stocks to develop into a secular (long-term) one, we need to see the positive macro drivers discussed above start to improve earnings, margins and return on equity at the corporate level, where EM has generally struggled since 2011. Some encouraging early signs of this include recent improvements of relative macro growth and earnings-per-share expectations of EM vs. DM, trends we will continue to watch closely going forward.

Chris Konstantinos is the Director of International Portfolio Management at RiverFront Investment Group, a participant in the ETF Strategist Channel.

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The Markit PMI (Purchasing Managers’ Index) series provides advance insight into the private sector economy by tracking variables such as output, new orders, employment, and prices across key sectors.

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