- Emerging markets have structural growth drivers and might benefit from continued dollar weakness
- Federated Hermes Global Emerging Markets provides attractive core exposure to these
- The fund may underperform in the near term if the rotation out of tech stocks continues
Despite emerging economy stock markets tending to include more cyclically sensitive companies that rely on purchases from the developed world, as a whole they have been very resilient since the outbreak of the pandemic. Over the year to 8 March 2021, MSCI Emerging Markets index rose 31 per cent, in line with MSCI USA index and ahead of MSCI World index, which increased by 25 per cent, according to FactSet.
The main driver of MSCI Emerging Markets' strong performance has been China, with large consumer conglomerates Tencent (HK:0700), Alibaba (HK:9988) and Meituan Dianping (HK:3690) dominating the index and experiencing huge gains as demand for their internet services soared. However, over the past month sentiment appears to have turned, with the Chinese index down 11 per cent and MSCI Emerging Markets down 6 per cent.