1. China dismantles its zero-Covid policies: The removal of almost all Covid-19 restrictions in China is resulting in a wave of infections, with up to 80% of people in urban areas contracting the virus. As the wave subsides, economic activity is expected to normalise. Durable goods and financial services are likely beneficiaries of a resumption in normal patterns of human interaction and trade. A recovery in outward-bound tourism is expected to benefit economies in Asia, which prior to 2020 were the prime beneficiaries of the large number of Chinese tourists.

2. Acceleration in renewable energy investments: The ‘new normal’ of elevated fossil fuel prices is likely to incentivise emerging markets to accelerate decarbonisation efforts in order to reduce energy costs and meet their Paris Climate accord targets. This will create potential opportunities for emerging market investors. The battery industry – for both electric vehicles and battery electric storage systems – as well as the solar industry, stand out. China and South Korea are at the forefront of new battery technologies, commanding 83% global market share between January and October 2022. India is also investing heavily in the solar industry as it seeks to become self-sufficient in photovoltaic panel production.

3. Policy pivot: As we head further into 2023, we find many reasons to be constructive about emerging markets. Markets such as Chile and Indonesia have started to pause interest-rate hikes or scale back the magnitude of their rate hikes. We expect a policy pivot to revive consumption and spur economic growth as inflation slows. In addition, after a slowdown in earnings in 2022, there is a prospect for a recovery in earnings growth in 2023. We view China as a leader with a near-15% estimated growth, based on consensus expectations. However, we are of the view that earnings may continue to still be relatively weaker in China in the near term, with a recovery timed toward the end of 2023 instead. Nonetheless, a pickup in earnings revisions in emerging markets would signify better times ahead for earnings and in turn, equities.

‹ Previous2023-01-26Next ›