Fortune

Why They’re Worth the Rocky Ride

Shaky currencies, scary economies, and global trade tensions shouldn’t deter investors from buying into these inexpensive, rapidly growing markets.

FOR A CHORUS OF THE LEADING VOICES in investing, it was the monster rally whose time had come. For about five years, a group of sages, including value-investing boldface names Jeremy Grantham, Mark Mobius, and Rob Arnott, kept pronouncing that shares of companies in emerging markets offered the world’s rarest blend of attractions: deep-discount prices compared with U.S. equities, cheap currencies, and the prospect of robust growth driven by a burgeoning population of youthful middle-class workers and consumers—all factors that long promised a powerful comeback in the beaten-down sector.

Two years ago, their prophecies came true. Valuations in emerging markets—a group of some 25 countries defined by low but growing per capita incomes, rapid industrialization, and zigzagging currencies—took flight. In the 24 months beginning in late January 2016, shares in the benchmark MSCI emerging markets index surged 85%, beating the S&P 500 by 31 percentage points. Despite the sprint, emerging markets looked as if they had plenty of room to run. Not only did they still boast a lot more earnings per dollars paid for equities in the developed world, they also now benefited from what they had long lacked: surging optimism and powerful momentum.

Then the revival suddenly collapsed. After peaking on Jan. 26, the MSCI dropped 22%, seven times the fall in the S&P 500, crushed by negative news about

You're reading a preview, sign up to read more.

More from Fortune

Fortune24 min read
Paul Cox Has A Radical Theory For What’s Causing Alzheimer’s. Here’s Why We Should Listen.
IN A SMALL LAB IN JACKSON HOLE, Wyo., 65-year-old Paul Cox believes he’s closing in on a treatment that might prevent Alzheimer’s disease. And ALS. And a host of other neurodegenerative diseases, for that matter. Cox, we should point out, isn’t a neu
Fortune4 min read
The Internet Space Race
THE NEXT BILLION PEOPLE who get connected to the Internet may be looking to the heavens. That’s where a race is on to provide online access from fleets of satellites, led by a who’s who of tech and several deep-pocketed startups. The aim is to help
Fortune2 min read
Remembering Herb
ON A VISIT to Southwest Airlines’ headquarters in Dallas, employees strolling the corridors stop to chuckle at a kind of mirth-filled museum depicting its legendary cofounder hugging and mugging. Workers can gawk at a life-size cutout of Herb Kellehe