Rising market shares are dashing larger on indicators of one of the best features since 2018

© Reuters. Emerging market stocks are rushing higher on signs of the best gains since 2018

(Bloomberg) – Emerging market equity investors are finally rewarded as promising signs of corporate earnings spark longest weekly rally since June.

For the first time in three years, developing country companies beat earnings forecasts, with average earnings up 3.6% above analysts' forecasts, according to Bloomberg data. This helped create a third week of profits for that. Traders are now waiting for results from index heavyweights like Samsung Electronics (OTC 🙂 Co., China Construction Bank (OTC 🙂 Corp. and Sberbank of Russia, all of which will be reporting this week.

This is a key moment for emerging market stocks grappling with risks ranging from Chinese regulatory crackdowns to impending stagflation. The index was barely changed on Monday as traders weighed inflation risks and a Covid-19 outbreak in China.

Investors who track the MSCI index hardly break even as the price is set for the worst annual performance since 2018. But a strong winning season could make all the difference.

For Malcolm Dorson, whose emerging market equity fund has outperformed 94% of its peers over the past three months, the outlook for certain sectors is particularly bright.

"Vaccine rates rose and economies reopened, which should have a positive impact on consumer income," said Dorson, an asset manager at Mirae Asset Global Investments in New York. “Emerging market rates rose and provisions decreased, which should have a positive impact on bank profits. And raw material prices have risen, which should have a positive effect on energy and material yields. "

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While the weakness of South Korean Samsung (KS 🙂 was one of the biggest contributors to the negative returns on the MSCI grade in the third quarter, the tech company's preliminary results have already set the stage for a solid quarter. China Construction Bank's earnings are expected to grow 10% in 2021, after up 1.6% in 2020, and consensus forecasts for Russia's Sberbank earnings rose by about 3 months in the past three months %, whereby further revaluations are possible. The three companies are among MSCI's top 20 holdings for equity valuation.

Tensions still lie in the results of Chinese companies, particularly hit by fears over government tightening and concerns over Evergrande's debt problems. Stocks in the world's second largest economy account for about 31% of the developing country benchmark, which makes their performance critical for broader emerging markets.

Goldman Sachs (NYSE 🙂 expects the MSCI EM Index to hit 1,475 points, or 11% higher in local currency, over the next 12 months, which is broadly in line with the earnings forecast for the developed world. The company is focused on stocks that will benefit from "domestic reflation" trends in emerging markets outside of North Asia.

"We are reassured that these parts of the stock market have shown very steady growth and very stable earnings per share in recent months despite the macroeconomic headwinds from the Chinese real estate market and US interest rate policy," said Goldman strategist Caesar Maasry in a Note.

Here are the top dates to look out for this week:

South Korea and Taiwan will release third quarter GDP data on Tuesday and Friday, respectively. Both are expected to report a year-over-quarter slowdown as a new wave of virus-related activity, although both continue to have robust exports
China will report manufacturing and non-manufacturing PMIs on Oct. 31, which could indicate whether the slowdown in the world's second largest economy is picking up pace. Growth slowed in the third quarter amid an energy crisis and real estate slump. The yuan has remained resilient this month
Brazil is expected to raise its key rate on Selic by 125 basis points to 7.5% on Wednesday. Analysts at UBS BB and Barclays (LON 🙂 Plc predicts an increase of 150 basis points
Colombian politicians are likely to hike rates a quarter point to 2.25% on Friday
Egypt's central bank will hold its benchmark at 8.25% on Thursday, with investors drawn to one of the highest inflation-adjusted interest rates in the world
Russia will publish industrial production figures for September on Wednesday and unemployment figures on Friday

(Updates with MSCI index steadily on Monday in the 3rd paragraph.)

© 2021 Bloomberg L.P.

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