1. Although the Chinese market lagged its emerging market counterparts in the final quarter of 2020, Chinese equities were among the leading outperformers for 2020. Geopolitical tension between China and the United States remains a key headwind that is likely to persist under new President Joe Biden’s administration, though we could see a shift to a more constructive tone. The US Department of Defense (DoD) recently added a number of Chinese companies to a list of those deemed to have some military connection. The executive order prevents US investors from holding any companies on the list, starting in late 2021. We continue to see the emergence of high-quality companies that are well placed to benefit from ongoing market consolidation and booming domestic consumption.

2. India has seen surging Covid-19 infections, but with mortality having been contained, economic reopening has continued. Although the disruption of traditional business models has weighed on some companies, we expect to see a positive impact on Indian technology service providers. The information technology (IT) services sector has been largely ignored over the last few years due to slowing growth and margin pressures, but both higher client traction as well as structural cost saving initiatives have offered support. As India embarks upon indigenisation and import substitution, the resurgence of manufacturing activity, as well as global efforts to diversify supply chains, could drive demand across a range of product categories including electronics, defence, automobile parts and pharmaceuticals.

Meanwhile, negative real rates in India will provide very significant support for the economy and markets going forward.

3. ͏͏͏Brazil, despite the political noise, has continued to focus on important economic reforms that are leading to a structural downward shift away from its historically high real interest rate. The central bank has also cut its policy interest rate to a record low, which reduces the cost of renegotiating or restructuring loans. Credit penetration in Brazil is far below many other markets, signalling room to head higher in the coming years; we think this supports prospects for the financial sector. More broadly, negative real rates should provide structural support to Brazil’s growth outlook. Challenges remain in Brazil, however, including rising debt levels as a result of stimulus measures, paired with uncertainty surrounding continued economic reforms amid a politically fragmented environment. This may, in turn, place upward pressure on longer-term interest rates.

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