Fisher Investments’ Founder, Ken Fisher’s Outlook on Emerging Markets in 2023

Transcript

Ken Fisher:

So Emerging Markets really aren't what people think they are in numbers of ways. So my outlook on it may not be what you expect me to have. First, there is no such thing as the Emerging Market. They're different. They don't highly correlate with each other. Used to be, though, was the concept of the BRICs running together. And you remember that Brazil, Russia, India, China, the BRICs.

But they're all going their own different directions and have Been for quite some time, and I think you know that. When we look at Emerging Markets, with some exceptions, they tend on a cap weighted basis, which is the way the indexes are constructed that measure them. They tend on a cap weighted basis overall in most countries, not all, most, to be dominated by a few large stocks.

In most countries in the world, and particularly in the land of the free and the home of the brave, we are biased because we have the broadest and most diverse stock market in the world. But when you ripple through just a few countries, you tend to get to where someplace, the five largest stocks not just dominate the market, but often are worth more than all the rest of the stocks put together.

And those in most Emerging Markets tend to not be anything other than defensive, big, often, Public Utility-type, Telecom. Electric Utility or Electric and Gas Utility, Water. Big, relatively defensive stocks.

Therefore, they don't have the oomph that people thought. The stocks like that do tend to be dependent on how is the country growing, in that country. But the reality is they're not, gee whiz, growthy things. Now, there's not 100% truth to that.

For example, China has benefited in years past from its technology sector being among its biggest stocks. But even there, now, China's not been doing so well lately, as I think you all know, both economically, its growth rate is still growing. It's contributing to global GDP growth, but at a slower and slower rates year-by-year and including this year where it's, you know, growing at been growing at an annual rate of about 6.5%.Its expectations have not been high and Tech has not been what's been leading it there. Tech stocks, huge spread between the big Chinese Tech stocks and the non-Chinese big global Tech stocks.

And there's a few other places where Tech is terribly important, like particularly Taiwan in the world that isn't the traditional you think of. But the fact of the matter is, for the most part, Emerging Markets is lagging badly. It'll continue to lag badly, in my opinion, because we've got a relatively slow growth economy with a lot of things people are still afraid of. A lot of agitation and skepticism.

And therefore, the things that lead to market are the ones that can actually have high confidence in their ability to grow. Not the companies that are smaller and more speculative and might grow the most, but might not.

I'm talking about the huge, high quality Growth companies. There have been a lot of discussion this year about the phrase, that used to be that was the phrase, the FAANG stocks or sometimes the FAANG stocks. But this year there's been the Magnificent Seven, from the Great Western flick. But there been a presumed that it's the Magnificent Seven. It is not the Magnificent Seven. They are among a broader universe of, but not very broad, high quality Growth stocks where the growth is pretty assured.

Outside Tech, there's been the realm, for example, of high-end, large Consumer Discretionary. Luxury stocks have done really well. But it is that part that's leading the world and where there's more risk involved, where it's lower quality, whatever that means, which includes most of Emerging Markets, it's a laggard market.

So you should continue to expect that to be. When will that change? I think, and I can't predict exactly when that is in time, it changes when we get to the point where we're no longer in the skepticism phase of the bull market and people start to look into optimism and think about where can they find opportunities. But right now, it's a more limited world, more with blinders on. And that doesn't include being the right place for Emerging Markets stocks.

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A series of disclosures appears on the screen “Investing in Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.”