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Emerging Markets Continue to Face Headwinds

From the desk of Omar Ezz, CFP®

Emerging Markets face several COVID-related headwinds (poor healthcare infrastructure, relative lack of fiscal & monetary stimulus resources, low commodity prices, and dollar denominated debt while the dollar is strong). However, Emerging Markets have also substantially underperformed the S&P 500 since the Great Recession. One of the drivers of this trend is a relative overweight to underperforming sectors (financials, energy, materials) and underweight in overperforming sectors (IT, healthcare). Emerging Markets may still have pockets of opportunity, but remain a case where simply “buying the index” could come at the expense of long-term returns.