Emerging Markets Outlook

Goldman Sachs released their 2016 forecasts for developing countries this week. Their strategists commented that “2016 could be the year EM assets put in a bottom and start to find their feet…There is the prospect of improved growth and better returns, even if it is not a rerun of the roaring 2000s.” The outlook forecasts a 4.9 percent growth rate in 2016 for emerging market economies, up from an estimated 4.4 percent in 2015. This would mark the first expansion in growth since 2010 and would be aided by their weaker currencies and an acceleration in growth in global demand. While this growth estimate remains below historical figures, it still presents an optimistic viewpoint for areas that have been hit by significant pessimism in the recent past. Economists echoed beliefs that emerging markets are more likely to grow over the next 3-6 months than to suffer another downturn, setting up for a positive 2016.

Some pockets of the emerging market countries remain in challenging environments, such as the more export driven economies which will be impacted by low commodity prices that continue to suffer. Goldman sees smaller contractions in countries like Brazil and Russia, but both of these economies remain in recession and any growth rate from either will be low and slow-going. Meanwhile India, China and areas in Europe could see further growth in 2016. Emerging market equities have trailed developed nations by over fifty percent the last three years. After three years of underperformance, Goldman Sachs and others believe opportunities exist.

T. Rowe Price also released their global outlook this week. Here is an excerpt from that piece:

“Growth has steadied in advanced economies, anchored by the U.S. and Europe. Peripheral European countries, including Ireland and Spain, have more economic momentum than their larger counterparts. Emerging market economies are generally slowing, driven by China and large commodity producers. Inflation is likely to remain benign—rising, but still low in advanced economies, and generally lower in emerging market economies. Core inflation is broadly below central banks’ targets in advanced economies and is more mixed in the emerging world. Monetary policies among global central banks will continue to diverge, creating selected interest rate and currency opportunities across world bond markets … Stock returns in emerging markets will continue to vary by country. Latin American economies that are tied to commodities may continue to struggle. Stock valuations in Asia-ex Japan are generally compelling and corporate earnings in many markets should improve after several years of poor growth. Though China’s economic challenges are well known, opportunities do exist, especially in sectors such as technology, consumption, and services, as well as in some state-owned companies that are undergoing structural reforms.”

Deadline Approaching for Avoiding Wash Sale Rules on Tax Losses:

If you sell an investment in an after-tax account and realize a capital loss, you are prohibited from buying the substantially identical investment within a 30 day window before and after the sale, otherwise the loss is disallowed. When investors own a position that has decreased in value since it was purchased, often times they want to continue to own the same position but also want to utilize the unrealized loss available. One approach to this is to buy the same number of shares for less at today’s market price with the intention to be purchasing when shares appear undervalued. The investor would then sell the original shares after 30 days to recognize the available capital loss.

The deadline for this particular strategy in 2015 is to purchase the new shares by November 30th (the Monday after Thanksgiving weekend) to be able to then realize the loss on the original investment before the end of the year. The other option is to sell the original shares first and then repurchase the shares after 30 days. This sale just needs to occur before December 31st and shares can be repurchased in 2016.

Capital losses can help offset realized capital gains for the year. If losses exceed capital gains, the amount of losses can then offset up to $3,000 of ordinary income ($1,500 if married filing separately). Thus using available losses is a good way to help decrease adjusted gross income. Any unused losses can be carried forward to future year tax returns.

 

This publication is provided as a service to our clients and associates of PFA solely for their own use and information. The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified. The content in this publication is for general information only and not intended to serve as individual investment advice. You should seek independent advice from a professional based on your individual circumstances.