Research Center - 2022.10 - Emerging Markets Charts and Views - EM investing after the great repricing

Entry points in Emerging Markets


Geopolitical tensions, high inflation and tighter global financial conditions continue to contribute to the already fragmented Emerging Market space.




Investment Convictions: Entry points after the great repricing

After the great repricing of 2022 it’s time for investors to reassess the economic and market backdrop for Emerging Markets (EM).

EM monetary policy normalisation is at an advanced stage compared to Developed Markets (DM)1.

The preference remains for Hard Currency bonds and for countries where tightening is already advanced; careful selection remains crucial.

International - Market Story - Emerging Markets - EM Bonds

EM equity markets appear close to historically cheap levels if you look at the valuation metrics2.

This could offer interesting entry points on a standalone basis and relative to DM. However, a highly selective approach is required in a fragmented EM universe.

International - Market Story - Emerging Market - EM Equity
EM monetary policy normalisation is at an advanced stage compared to Developed Markets (DM)1.

EM monetary policy normalisation is at an advanced stage compared to Developed Markets (DM)1.

The preference remains for Hard Currency bonds and for countries where tightening is already advanced; careful selection remains crucial.

International - Market Story - Emerging Markets - EM Bonds
EM equity markets appear close to historically cheap levels if you look at the valuation metrics2.

EM equity markets appear close to historically cheap levels if you look at the valuation metrics2.

This could offer interesting entry points on a standalone basis and relative to DM. However, a highly selective approach is required in a fragmented EM universe.

International - Market Story - Emerging Market - EM Equity

Opportunities in Emerging Markets

For 2023, we expect a soft landing scenario for the US economy and a recession in Europe. Geopolitical tensions, high inflation and tighter global financial conditions continue to contribute to the already fragmented EM space. Against this backdrop, select opportunities in Emerging Markets could materialise entering into 2023.

 

Key themes to watch out for when investing in EM

International - Market Stories - Emerging Markets

The EM growth gap with DM is going to increase. This should be a supporting factor for EM in 2023.
International - Market Story - Emerging Markets - Stability

We could see a new balance between growth and inflation. This could stop pressuring EM cost of capital and the dollar effect.
International - Market Story - Emerging Markets - The end

Inflation may already have peaked in some
emerging economies. Some EM countries have already completed their monetary policy normalisation.
International - Market Story - Emerging Markets - Risks to watch

Keep an eye out for further tightening of financial conditions due to a more hawkish Fed as well as ongoing geopolitical tensions.
 
Source: Amundi as of 24 October 2022. DM: developed markets. EM: emerging markets. CB: central banks.

 

HEAR FROM OUR EXPERTS

Sergei Strigo, Co-Head of Emerging Markets Fixed Income and Alessia Berardi, Head of EM Macro & Strategy Research at the Amundi Institute, share their views on what next for Emerging Markets and the implications for investors.

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1. Source: Amundi Institute. Analysis on Bloomberg data. Data is as of 23 September 2022. Government and EM indices are from JP Morgan. Euro and US credit indices are from ICE-BofA. HC: hard currency. LC: local currency. IG: investment grade. HY: high yield. ST: short term. Yield for EM Corp ST is JP Morgan CEMBI Broad Diversified 1-3 Year while duration is JP Morgan CEMBI IG+ 1-3 Years.
2. Source: Amundi Institute, Datastream. Data is as of 30 September 2022. EM: emerging markets. DM: developed markets.

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