Emerging market equities – why now?

GLOBAL economies have faced a number of challenges in recent months, leading to depressed stock market returns. The ongoing Russia-Ukraine war continues to have ripple effects on the global economy. And although most countries have gone back to business as usual following the peak of the Covid-19 pandemic, the virus is probably not going to fully disappear. In addition, China’s zero-Covid policy has been weighing on economic activity there. Other well-known market challenges include rising inflation and interest rates, as well as the surging US dollar.

Despite these headwinds, emerging economies continue to prove their resilience. We believe it is now a compelling time to consider emerging markets equities, even as many investors are less focused on the asset class.

Conventional and consistent policies

Policies in emerging markets have generally been more conventional and consistent than those of developed markets, which we believe will ultimately lead to more robust economies relative to their own history and relative to developed markets. In contrast to developed markets in the post-global financial crisis period, emerging economies did not experiment with negative interest rates. They have generally had upward-sloping, traditional yield curves over the past decade. During the recent pandemic, policymakers in emerging markets generally did not pursue very aggressive fiscal support plans, which means they did not blow up their sovereign balance sheets. Contrast this with developed markets like the United Kingdom, for example, which pursued aggressive fiscal expansions.