Straight talking from our EM experts

The fast view

• EM valuations are less stretched than many perceive them to be. This is especially the case when comparing to DM and when considering we may be at the start of a new growth cycle, with the push to ‘green’ the global economy likely to be a further structural tailwind for EM economies.
• The inflation picture is encouraging overall, with core inflation well behaved; supply shocks are temporary while demand drivers paint a picture of stronger growth. EM central banks have been proactive in countering inflationary pressure and staying ahead of the Fed. Some have already hiked; others are about to, and this is already priced in.
• Headlines about regulation in China should not overly worry investors. Closer tech sector scrutiny and moves to take the heat out of the property market both point to a more sustainable path for China’s economy and companies. While growth is slowing, these overall trends are positive for long-term investors.
• COVID vaccination programmes across most EM countries are making good progress. We expect that most EMs will have vaccinated a big proportion of their adult population by year-end, although some countries still have progress to make. This will help economies to continue to recover and enter the new growth cycle.
• Equity market evolution in EM over the last decade has resulted in a better quality investment universe. There are significant differences in the regional and sector make up of EM equities and EM corporate debt and a relatively low correlation; allocating to both can benefit a portfolio’s risk/return profile.
• With COP 26 on the radar, clients’ expectations have ramped up re. ESG integration and reporting. It’s key that this focus also enables a ‘just’ transition for EM. EMs will play a key role in the global net zero transition and engagement with corporates and sovereigns is crucial to help make this happen.
• We see interesting opportunities in equities among India’s IT Services providers, which have benefited enormously from COVID-induced shifts among businesses. We like local debt markets where a rate hiking cycle has been well priced by the market (eg Czech Republic) or easing is on the horizon (eg China). Among sovereign credit markets we like some high-yield names, including Ukraine and Egypt.