Emerging Markets Q1 2017 Recap: A Strong Start

Templeton Emerging Markets Group has a wide investment universe to cover—tens of thousands of companies in markets on nearly every continent. While we are bottom-up investors, we also take into account big-picture context. Here, I share the Templeton Emerging Markets Group’s overview of what happened in the emerging-markets universe in the first quarter of 2017, including some key events, milestones and data points going back a bit further to offer some perspective.

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Overview

Emerging-market stocks advanced in the first three months of 2017, with the MSCI Emerging Markets Index up 11.4%, recording the strongest first-quarter performance since 2012.1 Firming economic data in Asia and diminished concerns over potential US trade policy helped lift emerging-market equities.

Frontier markets lagged emerging markets but outperformed developed markets, with the MSCI Frontier Markets Index up 9.1% in US-dollar terms.2

Among commodities, precious and industrial metals advanced the most, while oil and natural gas prices declined during the quarter. High oil inventory levels and US rig counts have led to increased concerns about oversupply.

Emerging-market currencies generally gained against the US dollar over the quarter, as waning confidence in the ability of the US government to stimulate growth or impose trade sanctions led investors to adopt a weaker view on the US dollar. The Mexican peso, Russian ruble and South Korean won were among the top-performing currencies. The Turkish lira and Philippine peso, however, depreciated.

Country Updates and Key Developments

For those who are interested in really diving into the numbers, I am including some country updates that show changes in key economic indicators and measures more recently and going back further.

In Asia, Indian and South Korean equity markets made strong advances in the first quarter, as both markets benefited from local currency strength.

Several economists trimmed their 2017 gross domestic product (GDP) growth forecasts for India, expecting a temporary negative impact on consumption from cash shortages resulting from last-year’s surprise move to withdraw large-denominated currency notes from circulation. However, growth is still expected to be strong, forecast at 7.2% in 2017 and 7.7% in 2018, making India one of the fasting-growing major economies in the world.3

We continue to favor companies in the consumer sector in India that we feel are well placed to benefit from higher per-capita income and growing demand for goods and services, which, in turn, should support the earnings-growth outlook for consumer-oriented stocks.

In addition, India’s ruling party scored gains in state elections, and legislation related to the incoming Goods-and-Services Tax continued to progress.