Emerging market equities are off to a strong start in 2023, whilst investors remain concerned. Emerging markets have underperformed over the past two years as a rising dollar, rate of interest hikes from central banks world wide, and the lingering impact of the pandemic held back growth. The iShares MSCI Emerging Markets ETF (EEM) is down over 22% in 2022 and over 5% in the previous yr. Nevertheless, this yr the image seems to have modified. EEM is up greater than 8% this yr, compared to the S&P 500’s 1.5% gain. Lower valuations have made emerging market stocks attractive to investors as a weaker dollar, weaker inflation and a reopening in China are expected to be a boon for these assets. “Certainly one of the highlights of emerging markets has been compelling valuations,” said Quincy Krosby of LPL Financial. “They’ve been neglected again. They were, except Brazil did well, India did well, they were principally neglected by portfolio managers.” Despite this, investors have different views on the prospects for emerging markets here. Outlook Carlos Asilis, co-founder and chief investment officer of Glovista Investments, has an optimistic outlook on emerging market stocks and advises investors to chubby. If emerging market stocks account for a 10% benchmark allocation in a global stock index, Asilis said investors should take a weighting of around 12%. For investors with a higher risk tolerance, that allocation could possibly be as high as 20%, he said. “I’d say 12%, 11% is nearly neutral, right? A minimum of 12% is smart. After which possibly between 12% and 16% is smart,” Asilis said. He added that almost all investors might consider this a reasonable level of exposure. Others took a more measured stance. Arthur Budaghyan of BCA Research said he didn’t expect the present gains in emerging markets to be sustained and urged investors to wait on the sidelines for a higher opportunity this yr. He predicts that emerging markets’ outperformance may stall or partially reverse over the subsequent few months. But it surely could prove fortune for investors looking to get in later this yr. “I believe in the second half of the yr we may have more buying or chubby opportunities,” said Budaghyan. He expects the reopening of the Chinese economy to speed up more significantly in the second half, boosting economies in emerging markets. Furthermore, the slowdown in growth in these economies, resulting from the tightening of monetary policy, might also reverse this yr. Budaghyan has recently began to see growth in emerging markets but remains to be underweight in its global equity portfolio. He expects investors to be higher off holding money in money markets or global bonds for the subsequent few months. Meanwhile, Krosby of LPL Financial said the rally in emerging markets could possibly be short-lived, saying any increased level of liquidity could push valuations to less convincing levels. “Any suggestion that the market has the Fed fallacious, any suggestion that the Fed is definitely going to go to 50bps as opposed to the 25bp probability… Not all EMs are equal Even when EMs are fundamentally outperforming , some countries are expected to outperform others. Many market participants expect Chinese equities to outperform their peers this yr, despite lingering travel concerns. “A lot of our peers were massively underweight in China and underperformed dramatically last yr and early this month, so I believe we’re going to see a lot of Chinese stock buys,” said Glovista’s Asilis. The iShares MSCI China ETF (MCHI) is up greater than 12% this yr after falling 24% in 2022 and 22% in 2021. Other markets that Asilis believes are attractive include Southeast Asia, Taiwan, South Africa in addition to Brazil. Meanwhile, BCA’s Budaghyan said he would change into chubby in Mexico. While the country has exposure to america, which Budaghyan has negative views of, it has exposure to the automotive sector. iShares MSCI Mexico ETF (EWW) is up greater than 13% in 2023. Budaghyan added that Mexico is indebted to an area of the US that also sees high demand – that is because past supply shortages have made it difficult for people to buy cars. The strategist can also be in favor of exposure to South Korea and Chile. iShares MSCI South Korea ETF (EWY) and iShares MSCI Chile ETF (ECH) were up over 10% and nearly 1%, respectively. One sector Budaghyan would avoid is Chinese tech corporations like Alibaba, Baidu and Tencent. The strategist has concerns in regards to the long-term prospects for these corporations, given the federal government’s increased involvement in business.