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1. Foreign institutional investor (FII) flows into India: Investor flows turned positive in March following a recovery in the equity market, with $15 billion in inflows year-to-date through the end of July. India’s ability to capture an increasing share of foreign institutional flows into emerging markets reflects an improvement in the market’s risk-return profile. Factors include growth-oriented policy continuity, a reduction in inflation and the twin deficits (fiscal and current account balances), and increased spending toward infrastructure projects that increase capacity and productivity.

2. Earnings: Consensus expectations for the MSCI Emerging Markets Index reflect a 9% decline in earnings per share during the first half of 2023. The primary countries driving the earnings weakness are Taiwan, related to the semiconductor industry, and Brazil, related to the energy sector. Investors are expecting an improvement in the outlook for semiconductor demand to lead a recovery in the second half of 2023. These expectations are providing support to the MSCI Emerging Markets index, which gained 6.3% in July 2023.

3. Food prices: Following Russia’s decision not to renew the Black Sea grain initiative with Turkey and the United Nations, the price of wheat increased 10% in July 2023. Prices of other agricultural commodities have also increased; Thai rice was up 10% and palm oil prices have increased 20%. In combination with the confirmation of the El Niño climate phenomenon in the second half of  2023, there are upside risks to emerging market inflation. We are monitoring this for signs it is impacting margins of companies in the consumer staples sector.

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