Emerging Markets China

Stocks in developing countries look cheap. There’s one big caveat

- Ye Xie & Ben Bartenstein

To hear some big-name investors talk, 2019 is set to be a great year for emerging markets. Mark Mobius, co-founder of Mobius Capital Partners and a pioneer in emerging-market investing, says he’s buying stocks in places such as Brazil, India, and Turkey, predicting a “terrific recovery” in their economies. Howard Marks, the billionaire co-founder of Oaktree Capital Group LLC, is giving “a lot of attention” to developing-nation assets, particularly in Asia. Rob Arnott, founder of Research Affiliates and co-manager of the $17 billion Pimco All Asset Fund, is so optimistic that he’s boosted the fund’s stake in emerging-market equities to 23 percent, near the highest it’s been since its inception in 2002.

If they’re right, it would be quite a turnaround. In 2018, MSCI’s gauge of emerging-market companies fell almost 17 percent. Shares were weighed down by slowing economic growth, interest-rate increases from the Federal Reserve, and the U.S.-China trade war. Two key nations, Turkey and Argentina, saw ballooning trade deficits, soaring inflation, and political chaos. The Argentine peso lost half of its value, and the country received a record $56 billion bailout from the International Monetary Fund.