While 2022 brought a series of economic shocks for emerging markets, the outlook for the asset class is now more positive, with some emerging economies well positioned to grow in 2023.
The return of emerging markets in 2023
Amid China’s earlier than expected reopening and a downturn in US economic conditions, emerging markets (EM) are well positioned to continue outpacing their developed peers for growth in 2023. Discover our experts’ views on investment opportunities across EM regions and asset classes.
Investment Convictions: The Emerging Markets comeback
After the great repricing of 2022, yields in EM bonds are back to appealing levels from an absolute and relative standpoints. We believe, EM bonds offer an interesting entry point in terms of carry and spreads with opportunities in Hard Currency, local rates and FX.
The recovery of the Chinese economy with the EM-DM economic growth differential and uncrowded EM equity positioning compared to the historical average are supportive factors for the asset class. However, investors should note that the EM space presents a fragmented universe, implying a strong need to be selective so that country-specific factors can be taken into account.
EM sustainable fixed income universe has increased significantly in terms of issuance in recent years.
China in particular has increased its sustainable issuance significantly for the last two years and the country is by far the largest issuer across EM countries. In 2022, China spent $546 billion on energy transition investment, accounting for almost half of global expenditure1.
Emerging Markets Bonds
After the great repricing of 2022, yields in EM bonds are back to appealing levels from an absolute and relative standpoints. We believe, EM bonds offer an interesting entry point in terms of carry and spreads with opportunities in Hard Currency, local rates and FX.
After the great repricing of 2022, yields in EM bonds are back to appealing levels from an absolute and relative standpoints. We believe, EM bonds offer an interesting entry point in terms of carry and spreads with opportunities in Hard Currency, local rates and FX.
Emerging Markets Equity
The recovery of the Chinese economy with the EM-DM economic growth differential and uncrowded EM equity positioning compared to the historical average are supportive factors for the asset class. However, investors should note that the EM space presents a fragmented universe, implying a strong need to be selective so that country-specific factors can be taken into account.
The recovery of the Chinese economy with the EM-DM economic growth differential and uncrowded EM equity positioning compared to the historical average are supportive factors for the asset class. However, investors should note that the EM space presents a fragmented universe, implying a strong need to be selective so that country-specific factors can be taken into account.
EMERGING MARKETS SUSTAINABLE INVESTING
EM sustainable fixed income universe has increased significantly in terms of issuance in recent years.
EM sustainable fixed income universe has increased significantly in terms of issuance in recent years.
China in particular has increased its sustainable issuance significantly for the last two years and the country is by far the largest issuer across EM countries. In 2022, China spent $546 billion on energy transition investment, accounting for almost half of global expenditure1.
Emerging markets resilience should provide opportunities
After significant monetary policy tightening over the past two years in many Emerging Markets, we expect a more stable monetary policy, as the peak of inflation is likely to be behind us. Nevertheless, the global scenario is complex, risks are elevated and the fragmented nature of Emerging Markets will require a highly selective approach.
We believe now is the time for investors to reassess their exposure to Emerging Markets.
Key themes to watch out for when investing in EM
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EM-DM growth differential to move in favour of EM in 2023 driven by China's reopening and the slowdown in Developed Markets. |
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After a significant tightening of monetary policy by many EM CBs, we expect a more stable monetary policy, as the peak of inflation may be behind us. |
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The appreciation of the US currency in 2022 was a major challenge for many EM countries. The weak fundamentals in the US are reverting fast and a deteriorating outlook for the US vs the rest of the world is less positive for the USD and supportive for EM currencies in H2 2023. |
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One of the main risks to watch out for is the excessive tightening of financial conditions affecting economic growth. Investors also need to monitor idiosyncratic stories, and internal vulnerabilities which can increase EM fragmentation. |
Source: Amundi as of 12 April 2023. DM: developed markets. EM: emerging markets. CB: central banks.
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