(Bloomberg), — The longest weekly rally for emerging market stocks since June is finally over, thanks to promising earnings signs.

For the first time in three years, developing-nation companies are beating profit forecasts, with average earnings coming in 3.6% above analysts’ projections, according to data compiled by Bloomberg. This helped the to post a third week with gains. Traders now await the results of index heavyweights such as China Construction Bank (OTC) Corp. and Samsung Electronics Co. 

It’s a key moment for emerging equities, which have struggled with risks ranging from Chinese regulatory crackdowns to the threat of stagflation. As traders evaluated inflation risks in China and the possibility of a Covid-19 epidemic, Monday’s index barely changed.

Investors who track the MSCI index barely break even. The gauge is poised to have its worst year since 2018, with its lowest annual performance in 2018. A strong earnings season can make all the differences. 

Malcolm Dorson’s emerging-market stock fund outperformed 94% in the last three months. This shows that certain sectors have particularly good prospects. 

“Vaccine rates picked up and economies reopened, which should be positive for consumer earnings,” said Dorson, a money manager at Mirae Asset Global Investments in New York. “Emerging-market interest rates picked up and provisions came down, which should be a positive for bank earnings. And commodity prices have surged, which should be positive for energy and materials earnings.”

Listen to EM Weekly Podcast – Growth Data Watched and Turkish Lira In Focus

While weakness from South Korea’s Samsung (KS:) was one of the top contributors of negative returns for the MSCI gauge in the third quarter, preliminary results from the technology company have already set the stage for a solid quarter. China Construction Bank’s earnings are expected to show a 10% climb in 2021 after a 1.6% gain in 2020, and consensus forecasts for Russia’s Sberbank revenue rose by about 3% in the past three months, with further upgrades possible. The three companies are among the top 20 holdings for MSCI’s equity gauge. 

Tension still lies in results from Chinese companies, which have been hit especially hard by anxiety over the government’s regulatory tightening and concern over Evergrande’s debt troubles. Stocks from the world’s second-largest economy make up about 31% of the developing-nation benchmark, making their performance critical for broader emerging markets.

Goldman Sachs (NYSE 🙂 projects that the MSCI EM will rise to 1,475 points over the next 12 month, 11% above local currency, in keeping with the expected gains in developed markets. The firm is focused on shares that will benefit from “domestic reflation” trends in emerging markets outside of northern Asia.

“We are comforted to see these parts of the equity market with very steady earnings-per-share growth and performance in recent months, despite the macro headwinds from the Chinese property market and U.S. interest rate policy,” Goldman strategist Caesar Maasry said in a note.

These are the key figures to watch this week.

• On Tuesday and Friday respectively, South Korea and Taiwan are expected to release their third quarter GDP figures. The annual pace of both economies is likely to slow down compared to the preceding quarter, but they continue to experience strong exports.
• China will report manufacturing and non-manufacturing PMIs on Oct. 31, which may indicate whether the slowdown in the world’s second-largest economy is gathering momentum. The third quarter saw growth slow due to an energy crisis as well as a property slump. The resilient yuan has held its ground this month
• Brazil’s key Selic Rate will be pushed up by 125 basis point to 7.5% on Wednesday. UBS BB Analysts and Barclays (LON. ) Plc expects a 150 basis-point increase
• The Colombian government will likely raise interest rates by 25% on Friday, to 2.25%
• Egypt’s central bank is set to hold its benchmark at 8.25% on Thursday, with investors drawn to one of the world’s highest inflation-adjusted rates
• Russia will announce September industrial production data Wednesday. Unemployment data Friday

Updates of MSCI index stable on Monday at 3rd paragraph.

©2021 Bloomberg L.P.