Last year was admittedly a tough one for emerging markets. A number of currencies were under considerable pressure, with some of them falling to record or near-record lows against the strong U.S. dollar. Global trade tensions, threats of sanctions, rising U.S. interest rates and higher oil prices—before they began to crater in October, that is—also contributed to the selloff. From its 52-week high set in January 2018, the MSCI Emerging Markets Index sunk into bear market territory by the end of October.

Emerging Markets and the U.S. Dollar Have Shared an Inverse Relationship
click to enlarge

But since then the investment case for emerging markets has vastly improved, and global investors are betting big that the U.S. dollar will ease on less aggressive monetary tightening. This would relieve some of the pressure on emerging economies that must pay higher prices on imports from the U.S. when the dollar is strong. As of January 24, emerging market equity funds have seen positive inflows of over $3 billion for a remarkable 15 consecutive weeks.

Mobius and Gundlach Bullish on Emerging Markets

Some big-name investors have lately recommended that now might be the time to consider emerging markets, among them Mark Mobius and DoubleLine Capital founder and gold advocate Jeffrey Gundlach.

Speaking with Bloomberg this month, Mobius said he favors India, Brazil and Turkey as they’ve had a “terrific recovery” since the currency meltdown last year. Within a portfolio’s emerging markets allocation, he recommends 30 percent in India; 30 percent in Latin America, including Brazil, Argentina, Chile and Mexico; 30 percent in Eastern Europe countries such as Poland, Turkey and Romania; and the rest in China and other parts of Asia.

Some of Mobius’ picks were among the most banged up in 2018, as you can see in our updated Periodic Table of Emerging Markets. Turkey’s Borsa Istanbul 100 Index (BIST 100) was down around 41 percent for the year, priced in U.S. dollars. Argentina’s MERVAL Index fared even worse, losing slightly more than half its value on out-of-control inflation and interest rates as high as 60 percent—the highest in the world.