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Emerging Market Equities Rise on Government Initiatives

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Jan. 28 2016, Updated 10:07 a.m. ET

Emerging market equities

Emerging market equities (EEM) rose by 0.2% for the week ended January 22, 2016. This was mainly due to marginal recovery in Chinese equities on expectations of more regulation and gross domestic product (or GDP) growth closer to the target set by the government.

China’s Shanghai Composite Index rose by 0.5% during the week ended January 22. Chinese vice president Li Yuanchao, speaking at the World Economic Forum in Davos, Switzerland, said that China’s markets are not yet mature and the government will boost regulations in an effort to limit volatility.

Fang Xinghai, vice chairman of the China Securities Regulatory Commission, also assured investors that his government is prepared to intervene again to stave off any large liquidity problems that could lead to systemic risks.

China’s GDP for 2015 came in at 6.9% against the government’s 7% target. In 4Q15, China saw growth of 6.8%. China has set a target growth rate of 6.5% for 2016, as its transition from an export- and investment-led economy to a service- and consumer-driven economy is expected to take some time.

The persisting slowdown in China has put additional pressure on commodity prices. This has resulted in lower exports from Brazil and Russia. Russia’s economy has been badly hit by the fall in crude oil prices.

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Stock market performance is a key driver of asset managers’ revenues, as performance flows directly into their earnings and share prices. Companies that would benefit from a bullish trend in emerging market equities include BlackRock (BLK), Goldman Sachs (GS), Franklin Resources (BEN), Fidelity Investments, HSBC Holdings (HSBC), and Blackstone (BX).

Indian economy

Indian equities fell by 0.1% during the week ended January 22. India’s economy has shown fundamental resilience. The nation is benefiting from lower oil prices and improving its domestic economy, which is driven by infrastructure and consumption.

India’s economy grew by 7.4% in 3Q15, higher than economists’ estimates of 7.0% and the highest among the major nations. This growth was helped by a 9.3% rise in manufacturing activity. Higher growth in manufacturing also comes as a boost for the country’s ruling government, which is pushing for growth through productivity.

In 3Q15, Russia’s economy contracted by 4.1%. Brazil is expected to report a significant contraction.

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