Lazard Emerging Markets Core Equity Portfolio: Q2 2024 Analysis and Insights
The second quarter of 2024 saw a significant boost in equity markets in the developing world, driven by ongoing investor excitement over artificial intelligence. The MSCI Emerging Markets Index rose by 5.0%, with Emerging Asia leading the way with a remarkable 7.4% increase. Eastern Europe also performed well, climbing by 6.7%. However, Latin America faced challenges, tumbling by 12.2%.
Elections in key countries such as India, South Africa, and Mexico had a notable impact on the markets. Emerging Asia emerged as the best-performing region, with Taiwan and Korea experiencing sharp rises in their stock markets, fueled by the AI frenzy that boosted the information technology sector, a key industry for both countries. India’s stock market surged following the election results, despite some disappointment in Prime Minister Narendra Modi’s performance. On the other hand, Indonesia’s stock market faced a decline due to concerns over high interest rates and adjusting to a new government. China’s stock market, however, advanced on positive sentiment surrounding the country’s improving economic outlook.
In contrast, Latin America struggled during the quarter, with Mexico’s stock market taking a significant hit, declining by 16.1% in response to the presidential election results. Investors feared that the Morena Party’s victory would lead to aggressive reforms. Stock markets in Colombia and Chile also fell sharply, weighed down by the performance of raw materials producers. Brazil’s stock market faced challenges due to political uncertainty that could impact energy and retail companies, while Peru’s stock market ended the quarter with modest gains.
The region encompassing emerging Europe, the Middle East, and Africa (EMEA) underperformed, with mixed results in stock markets. Turkey’s stock market saw growth due to positive sentiment around the country’s monetary policy, while Greece’s stock market experienced a modest decline after a strong period. Stock markets in the Gulf fell in line with decreasing crude oil prices. South Africa’s stock market surged post-election, with the possibility of a coalition government between the African National Congress and the pro-market Democratic Alliance (DA).
In terms of sectors, information technology, communication services, and utilities were the top performers in the quarter, while healthcare, consumer staples, and materials faced challenges.
In the second quarter, the Emerging Markets Core Equity Portfolio (MUTF:ECEIX) saw gains in absolute terms and performed in line with its benchmark, the MSCI Emerging Markets Index. Stock selection in the information technology and materials sectors played a significant role in boosting relative performance, particularly in Taiwan and Korea. Exposures to South Africa also contributed positively. However, stock selection in the financials and consumer discretionary sectors, as well as in China, negatively impacted relative performance. Exposures to the consumer staples sector and Mexico detracted from performance.
Looking ahead, it is believed that the unsynchronized global economic environment will continue to provide a relatively balanced level of economic activity that is positive for equities. Barring significant exogenous risks, this backdrop should be favorable for emerging markets equities.
In conclusion, the second quarter of 2024 showcased a mixed performance across emerging markets, with notable developments in key regions and sectors. Investors will need to closely monitor political and economic factors to navigate the evolving landscape of emerging market investments.