“Last year, earnings accounted for the largest proportion of EM returns since 2010, which is shown below. This year, earnings and dividends are still positive but weighed down by negative currency and price-to-earnings (P/E) effects. However, earnings expectations for the rest of 2018, while below last year, are still ahead of the five years before 2017,” according to SSgA.

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Investors considering emerging markets should consider ignoring near-term noise, such as fund flows, and focus on fundamentals.

“However, the reversal in flows to EM equity markets is unearthing new attractive entry points for long-term investors. Moreover, the underlying fundamentals for many countries and companies remain strong, and differentiation with weaker areas is growing, offering greater opportunities for skilled stock pickers,” adds State Street.

For more information on the developing economies, visit our emerging markets category.