This emerging market confidence offers further gains for those willing to stay the course

Investing in stocks is rarely smooth or stress-free. It is full of periods of disappointment and doubt that can drive less experienced investors to give up. However, according to Questor, it is imperative to stay with high-quality investments that offer great potential for capital growth over the long term.

Emerging markets, for example, have had a very challenging year so far.

China’s Zero Covid Policy acted as a major barrier to performance; it is largely responsible for the sharp slowdown in the country’s economic growth rate, which fell from an annualized 4.8 percent in the first quarter to just 0.4 percent in the second.

Partly as a result, China’s stock market has fallen 14 percent since the start of the year. It and other emerging markets were also affected by weaker investor sentiment, which encouraged the flow of capital to less risky locations.

The Federal Reserve’s hawkish monetary policy also raised concerns about emerging market debt repayment and servicing after the big stimulus it created in response to the pandemic.

Importantly, China recently announced a partial softening of its stance on Covid. Like the rest of the world, he seems to realize that zero covid is impossible to achieve and not worth the severe economic consequences.

With the country accounting for more than a quarter of the MSCI Emerging Markets index, its new stance suggests a more buoyant period could be ahead for emerging markets.

In fact, the country’s economic growth has already returned to an annual rate of 3.9 percent in the third quarter. The IMF predicts that China will grow by 3.2 percent this year and 4.4 percent next year. Other developing economies such as India are also expected to significantly outpace the developed world in 2023.

Together, emerging markets are forecast to grow by 3.7 percent next year, while developed economies will only grow by 1.1 percent.

This bodes well for emerging market mutual funds, such as one of the previous recommendations in this column, JP Morgan Emerging Markets. It has fallen 19 percent this year, but has still outperformed the MSCI Emerging Markets index over the past decade.

In fact, its annualized return is more than two percentage points higher than that of its benchmark index at 6.6 percent versus 4.2 percent. This may sound small, but over the years it really matters.