- While emerging markets underperformed developed markets in 2022, if you strip out China, emerging markets actually performed in line with the developed world. We expect emerging markets to bounce back in 2023. In addition to trough valuation and light investor positioning, the growth differential between emerging and developed markets is set to expand on the back of favourable demographics, manufacturing capabilities, and availability of critical resources.
- China is at a critical juncture and faces three principal challenges: geopolitical rivalry with the US, the ongoing fallout from Covid-19, and issues in its property sector. Chinese equities are approximately 25% cheaper compared to the historical average on the MSCI China index. We expect the Chinese market to perform in 2023 if the economy re-opens and policymakers successfully stabilise the property sector.
- While investors are likely to focus excessively on the impact of the re-opening of China’s economy, the prospect of a less hawkish US Federal Reserve, and possibly rate cuts in the latter half of 2023, we are taking a much longer view on investing in emerging markets as we have lower conviction in the sustainability of the current market narrative. This report, therefore, looks beyond the near-term momentum and focuses on opportunities and challenges that are likely to materialise over the medium- to long-term.