Analysts Are Finally Coming Round to Emerging-Market Stock Rally
(Bloomberg) -- Four months after emerging-market stocks began rallying from a 19-month low, the gloom that’s beset equity analysts may be finally lifting.
The small up-tick in the earnings-estimates chart for emerging markets is the strongest sign in 13 months that analysts are turning bullish on corporate performance.
The average forecast for profit at companies in the MSCI Emerging Market Index rose for a seventh day, the longest streak since January 2018. That means analysts, who had cut their projections by 10 percent in as many months, are finally letting go of their pessimism and joining investors to wager on a growth revival in developing nations.
Investors started returning to emerging-market stocks at the end of October as valuations that fell to the lowest level since March 2014 became too cheap to ignore. In the following months, optimism that a trade war between the U.S. and China would end with an agreement boosted risk appetite, sending the benchmark index 14 percent higher from its bear-market low.
Yet, analysts continued to cut profit forecasts amid a collapse in China’s exports and downgrades of global economic growth estimates by the International Monetary Fund, even as the stocks gauge rallied 10 percent this year.
Read: Small Difference of Opinion May Herald Big Gains for EM Stocks
This led to the narrowest gap since 2014 between equity valuations based on trailing 12-month profits and those based on estimates for the year ahead. Such a squeeze in the spread had sparked stock gains in the past, underscoring that analysts lag behind investors in betting on trend reversals.
©2019 Bloomberg L.P.