March in like a Lion, Out Like a Lamb for Emerging Markets
In March, emerging market equities put in their worst month since May 2012 with the iShares MSCI Emerging Markets Index ( EEM , quote ) down by -1.9%, while extending the underperformance to developed equities, as measured by the SPDR S&P 500 ETF ( SPY , quote ), to -12.6% from the Jan 2, 2013 to month end.
When comparing March 2013 to March of 2012 we must put into context: while emerging markets saw 16% drawdown in March through May 2012, this came after a 17% rip to start the year.
In 2013, emerging markets saw a one day of rally on January 2nd, and proceeded to move lower by 6.2% to the lows on March 22, before staging a small month end comeback.
As the calendar turns to Spring, emerging markets are now down by -4.2% from January 3rd and we are only now just heading into what has historically been the scariest season for the asset class.
March came in like a lion and when out like a lamb. What does April hold, and more importantly what do May and June have in store for emerging markets? What should give emerging market investors some comfort heading into this stormy season is that not only has the asset class been trading on its heels, emerging market currencies are cheap and the sovereign credit and corporate credit stories are improving.
As investors in the U.S. try to rally higher, there will be a desire to look for laggards and solid fundamentals. Core emerging markets (BRICs + CIVETS) are largely seeing upgrades with flush reserves, low inflation, and improving consumption trends. Tread carefully but 1Q showers may actually bring May flowers.