Earnings season. The earnings season in emerging markets is underway. Flat headline earnings growth in 2023 masks significant divergence across individual markets. Consensus expectations for China is for earnings growth of 20%, with India also expected to witness double-digit growth. However, heavyweight markets in Taiwan and South Korea are expected to witness a contraction in earnings of 26% and 40% respectively. This is primarily due to weakness in the semiconductor sector, which has a large weight in both markets. Commodity-heavy markets – including Brazil and Saudi Arabia – are also forecast to witness a contraction in earnings due to lower commodity prices compared to the year-earlier period.
Rising resource nationalism. The Chilean government is issuing new rules on lithium mining in the country. Future projects are required to have the state as the majority shareholder. The goal of the policy is to raise output to meet the forecast increase in demand for lithium, which is a key input to electric vehicle battery production. The government has indicated it will honour existing mine concessions, which for the largest projects expire in 2030 and 2047. There are lingering concerns about how the government will execute the policy and the impact on future contract negotiations. The decision to impose the state as the largest shareholder in future projects reflects a global trend toward government tightening controls over strategic industries.
A tale of two sectors. Recent purchasing manager index (PMI) data highlights divergent trends in the services and manufacturing sectors across emerging markets (EMs). Services-sector PMI is firmly in expansionary territory in China and Brazil, whereas manufacturing PMI data in the same economies have weakened in recent months. This trend reflects the post-COVID pivot toward services, and concurrent dip in demand for manufactured goods. This has negative implications for EM economic growth, as manufacturing tends to have a higher weight in these economies relative to services. Conversely, it has potentially positive implications for equity markets as the weight of broadly defined services is larger than the weight of broadly defined manufacturing in EM equity indices.

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