The State Of Emerging Markets In The Global Economy

The Bulls May Be Stomping but Not Everyone is Chompin…

The decision by the Federal Reserve Bank to maintain interest rates at their current level of 0.25% – 0.50% has had a significant impact on the performance of emerging markets around the world. Of the 63 major stock market indices, it was reported that 28 are now officially in bull market territory. What is even more significant is that the total value of these markets is $28.5 trillion. The performance of the remaining indices has also shifted in the direction of positive growth.

There are an additional 10 major indexes valued at $4.3 trillion that are likely to move into bull market territory if the current trajectory of growth is maintained. However, Barclays analysts believe that the current turnaround for many emerging market economies will only be sustainable provided that the earnings estimate of companies rise accordingly. The decision by the Fed was notable in that the performance of the global economy was deemed more important than the performance of the US economy alone. By keeping interest rates at their current level, the Fed made a strategic decision not to compound the problems in the world economy. Multiple markets have rallied since the Fed decision including the following:

MSCI Emerging Markets Index Sharply Higher for March

The major indices of several countries are also on the cusp of a bull market including Norway, Netherlands, Poland, Austria, Spain, Portugal, Saudi Arabia, Indonesia and others. Nonetheless, there are serious concerns about corporate earnings with these major averages. There have been higher profit expectations of late, but the overall performance of many of these economies is still lagging behind 2007 performance figures. As with the Fed and its decision to hike interest rates in December 2015, stronger evidence is needed before any sweeping statements can be made about bullish or bearish sentiment across the world. There are calls for earnings estimates from major corporations to rise before analysts give thebull market grade to the major averages listed above. While the recent performance has certainly been bullish, it is insufficient to categorize the overall performance of these economies as bullish. Consider that the performance of major indices was exceptionally bearish at the start of the year, with some 40 equity markets valued at $27 trillion trending bearish. While the MSCI emerging markets index slid 0.1% on Wednesday, 23 March, it remains sharply higher for the month at 6.5%.