By Rob Isbitts
Investors are starting to notice that the stock indexes covering the so-called “Emerging Markets” have been declining steadily. There can always be many reasons for such a development, but the leading culprits these days are slowing growth in the Chinese economy (and China is a dominant customer of businesses in the developing world) and tariff/trade war concerns between China and the U.S.
Historically, the Emerging Market stock index (the most prominent of which has been run by MSCI for decades) has been a far more volatile index than those that cover large U.S. stocks, such as the S&P 500. The Russell 2000 small cap stock index tends to fall somewhere in between, in that it is smaller, riskier businesses, but they are U.S. based, which gives them an implied “quality” boost over Emerging Markets (whether deserved or not).
You are probably thinking at this point that Emerging Markets are such a small part of your portfolio (if you own them at all) that all this talk about an Emerging Markets stock decline is, pardon the expression, “foreign” to you – it has no bearing on your investment results. I beg to differ, and here is why.
History shows us that Emerging Markets often are the “canary in a coal mine” that tips the market’s hand that there are real concerns about the global economy. In turn, these concerns can lead to investors “voting with their feet” and eventually taking all global equity markets down. And that DOES impact you.
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