This Is Why A Weak US Could Drag On EM Performance
Morgan Stanley has just upgraded emerging markets to outperform for 2019 and we are not surprised. The Emerging markets are growing at double-digit paces as populations grow, mature, and urbanize. The build-up of these economies is driving value for investment and not likely to stop.
The risk to growth, says Gokul Laroia, co-head of Global Equities and co-CEO of Asia Pacific at Morgan Stanley, is the US. Weakness in the US economy could stifle growth in emerging markets for the simple reason most of the money invested in these markets comes from abroad and a lion’s share of that comes from the US.
Growth May Slow, It Won’t Stop
Does this mean growth will stop in emerging markets? With China set to ease its policy tightening, the FOMC indicating neutral rates are at hand, and the possibility trade relations with China are about to improve there is a reason to believe growth in the emerging markets will accelerate. Morgan Stanley says the MSCI Emerging Markets Index could reach 1,100 by the end of 2019 and we think that is a low estimate.
Policy easing in China and the US FOMC’s new stance rates are near neutral, along with renewed trade relations between the US and its partners, will allow growth in both the world’s largest economies and that growth will trickle through Asia, Mexico and Central/South America, Africa, and the developing nations of Europe. Laroia says that the depth and length of correction in the emerging markets have set up conditions ripe for a reversal and that we do agree with.
This Is Where You Should Invest In Emerging Markets
If there is one sector guaranteed to see steady, long-term revenue growth in the emerging markets it is infrastructure. Infrastructure is the lifeblood of any economy and includes roads, water, electric utilities, energy, communications and much, much more. Spending on infrastructure, and in particular global-listed infrastructure, is reaching new highs each year and only expected to increase.
According to a report released by the G-20 backed Global Infrastructure Hub in 2017 global infrastructure spending needs will top $94 trillion by 2040. At only 3% of global GDP, infrastructure remains woefully underfunded despite increased spending in nearly every developing nation. The report says spending needs to increase to 3.7% in just to keep up with need.
It Pays To Own Global Listed Infrastructure
Craig Noble, CEO, Chief Investment Officer, and Portfolio Manager at the Brookfield Global Listed Infrastructure Income Fund, believes there are two sides to the infrastructure play. On the one hand, emerging markets are tasked with the build-up of first generation infrastructure and services while on the other, established markets face upgrade and maintenance that ensures the long-term need for businesses engaged in infrastructure.
The Brookfield Global Listed Infrastructure Fund is a closed-end fund trading on the NYSE under the ticker symbol INF. It invests in infrastructure plays listed on global exchanges and diversifies across business type and sector. At current share prices, near $11.25 per share, it yields 8.75% and adds diversification with safer risk-adjusted returns to investment portfolios than you get with most S&P 500 stocks.