Emerging Markets

In the ten years since the global financial crisis, emerging markets have faced significant challenges, including a collapse in commodity prices, QE-induced financial market volatility, Russia’s annexation of Crimea, and corruption scandals in Brazil.  Largely, their people, institutions, and governments rose to meet those challenges and charted a path forward.  With this COVID-19 outbreak, East Asian emerging market countries, such as South Korea and Taiwan, are managing the crisis with competence and efficiency.

Global markets ended the year on an optimistic note, as synchronized policy easing and an imminent trade deal between the U.S. and China boosted equities, commodities, and emerging market currencies.  Monetary easing and an increasing amount of fiscal stimulus across developing markets boosted cyclical stocks, despite persistent downgrades to global GDP growth expectations. The signing of the phase one deal between the U.S. and China is a positive milestone, but complex, ideological differences between the two countries mean a lot of work lies ahead for subsequent negotiations.

The global economy continued to slow during the third quarter, as trade tensions remained high and geopolitical risks escalated.  With limited prospects for a comprehensive trade deal and reacceleration in global trade, emerging market policy makers have been pulling the traditional policy levers to confront stagnating growth.  A moderating inflation outlook lowers the risk of capital outflows and downward currency pressure, allowing central banks to join the synchronized monetary easing well underway in the developed world.  Manageable government deficits have also cleared the way for more

The Perterra Emerging Markets Fund, LP declined 0.8% in the second quarter, compared to the +0.6% return by the MSCI Emerging Market Index in U.S. dollars.  This virtually flat performance of the index came despite the uncertainty caused by the escalating trade war between the U.S. and China, general elections in India and Indonesia, and the passage of a critical social security reform bill pending in Brazil.  This uncertainty exacerbated the fact that the global economy appears to be entering a period of decelerating growth and synchronized policy easing.

Equity markets rebounded during the first quarter, reacting favorably to U.S Federal Reserve’s shift to more accommodative policies and improving confidence on the U.S.-China trade negotiations.  Central banks turned dovish in response to tightening financial conditions and slowing global growth.  China’s reaccelerated fiscal stimulus and progress on the trade talks alleviated concerns surrounding its economic slowdown.  Emerging market equities reacted favorably, gaining 9.9% in U.S.

The fourth quarter was very difficult for global markets, as prices for most risk asset classes experienced elevated volatility.  Investors in emerging markets were faced with shifting growth and risk dynamics due to several macro factors, including an unclear endgame for the U.S./China trade war, decelerating U.S.

The MSCI Emerging Markets Index declined 1.1% as tightening monetary conditions in the U.S., the strong U.S. dollar, political uncertainty, escalating trade tensions, rising inflationary worries, and fund outflows weighed on performance.  The Perterra Emerging Markets Fund, L.P.

The Altrinsic Emerging Markets Equity portfolio delivered a -5.4% return during the second quarter, outperforming the 8.0% decline by the MSCI Emerging Markets Index as measured in U.S. dollars.  Rising U.S.

Volatility returned in the first quarter as investors reassessed the potential impact of rising interest rates, the reversal of quantitative easing (QE), and the increasing trade tensions between the U.S. and China.  The Perterra Emerging Markets Fund, LP was down 2.7% during the quarter, while the MSCI Emerging Markets Index gained 1.4%, as measured in U.S.

Quarterly Letter


World markets registered another quarter of strong returns against a backdrop of synchronized global growth, resilient manufacturing and services activity in China, and a potentially stimulative tax reform package in the U.S.  Gains were broad based across asset classes, including emerging markets which gained 7.4%. 

Absolute returns have been strong, but it has been difficult for those of us applying a value discipline to outpace the MSCI Emerging Markets Index, in which the largest constituents and leading performers are a concentrated group of highly valued growth stocks.