Emerging markets – combining resilience and strong growth

 

August 2023 | 3 min read   

Emerging markets, thanks to their resilience and growth advantage over developed countries, could represent a possible investment destination for the second half of 2023. We believe that emerging markets could potentially provide opportunities for investors across all major asset classes.

 

 

As an effect of the ongoing monetary policy tightening, the US could enter a mild recession, while upcoming European GDP figures could be below potential. On the other hand, emerging markets (EM) may benefit from a more positive macroeconomic environment.

Among EM, Asia will be the main growth engine: its market size, labour prices and government policies supporting the business climate could attract more foreign investors, hence reinforcing economic prospects.

In China, a number of factors including weak household consumption, current level of debt of local governments, and an overextended property sector are pointing towards an economic slowdown that could be more structural than cyclical. Following the release of the latest GDP figures, we have downgraded our growth expectations for 2023 from 5.7% to 5.1%¹. In terms of future policy decisions, the Chinese leadership recently implied that it won’t provide economic stimulus to key debt-fuelled engines such as the property sector, and local governments will have to deal with their own implicit bad debt issues.

The current environment might potentially be favourable for India. Even if its growth may moderate at around 6%¹, investments in semiconductors, electric vehicles and renewable energy could be beneficial over the long term.

Latin America and Eastern Europe are characterised by a more diverse situation. Many of these countries are in an advanced position in terms of monetary policy normalization, which led to strong bond market performance year to date. Local policymakers should prepare themselves to lower interest rates in the second half of 2023. Chile has been the first country that cut its rates in July and it could be soon followed by Brazil, Colombia and Peru. Central and Eastern European countries may join this group soon.

Emerging market bond yields fell in the first half of 2023, but could still represent a possible entry points for investors, especially in the light of a weaker US dollar. Indeed, low-volatility (e.g. Euro, Yen) and Latin American currencies (countries with a strong reliance on commodity exports) will benefit from a weaker greenback. In addition, thanks to improved debt ratios, conditions in the corporate bond space are improving.

Cheaper valuations may lead investors to favour emerging market equities, with some regional differences. Specifically, countries that are in a more advanced stage of their monetary policy cycle could experience a faster rotation into equities.

If you would like to learn more about why we believe emerging markets could provide appealing opportunities for investors, read the full Compass . Realized by the Amundi Institute , it presents an in-depth analysis of the status of emerging markets and their asset classes.

Source:
¹ Amundi Institute, Compass, Emerging market resilience paves the way for new opportunities, 31 July 2023 

Important information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 9 August 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. All investors should seek professional advice prior to any investment decision, in order to determine the risks associated with the investment and its suitability. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: 9 August 2023
Doc ID: 3048411