Summary
There is an opportunity to over-allocate towards emerging markets in 2023 due to softening USD, reopening China and firm commodities.
Emerging markets do well when the USD is softening and cooling inflation may allow the Federal Reserve to pause earlier than expected.
China is a significant holding in Vanguard Emerging Markets ETF and growth will benefit from reopening and stronger government support.
Emerging markets are long overdue a period of outperformance and native currency tailwinds will help debt and equity returns.
Introduction
2023 looks like an opportunity to add non-correlated alpha to your portfolio by over allocating to Vanguard Emerging Markets Stock ETF (NYSEARCA:VWO).
It's been more than a decade since the last time VWO outperformed the S&P 500 (SPY) but this year presents that opportunity for several reasons.
A weakening dollar - This helps emerging markets and the US dollar has likely peaked.
China - VWO's allocation to China shouldn't be a drag this year due to a boost from reopening following Zero COVID policy and a more supportive government policy package for the economy.
Firm commodity prices - Partly due to Russia sanctions and partly due to economic stimulus in China we expect prices to remain firm and support commodity producer component of emerging markets.
We will discuss these items in more detail, the potential risks and also a potential alternative should you to invest in emerging markets without China.
Read the rest of the report here on Seeking Alpha.
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