Investors shun emerging markets

Those expecting a strong start in the stock market for January have been met with malaise.

Emerging markets that have underperformed the developed markets are continuing to face challenges.

The EEM ETF, which is an indicator of the emerging markets, has shed close to 5% in the past three days. The last time this level of aggression in selling was seen in May 2013 when taper talks first emerged. One of the reasons there has been an exit from the emerging markets is that the economies are not expanding at the rapid rate it used to.

This morning’s HSBC Emerging Markets Index, showed a drop to 51.6 in December from 52.1 in November. This is in line with aggregate emerging markets GDP, which has been on a decline since hitting a peak in 2010.

In comparison, the developed nation’s fundamental growth in emerging markets appears to be lagging. The bright spots for the developed countries in manufacturing is the US and UK, as seen in the JPMorgan global manufacturing PMI for December. In Asia, Taiwan was the only country that showed strength in the manufacturing output index, hitting a 32-month high. Foreign investors also feel the same way about Taiwan’s equity markets, where fund flows have accelerated into the country during September to December last year.

China so far has been showing moderate signs of growth in both its services and manufacturing. The shift towards a more sustainable growth with domestic demand and away from exports will take time. The investment community understands the necessary slowdown in China and there is a tolerance of this model as long as the output remains above 50.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.