Return of emerging markets? The high yield differential of 2023
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Despite the economic turbulence throughout much of last year, emerging markets proved surprisingly durable. Yet persistent memories of the financial shocks in these countries during the 1990s leave some investors wary of allocating to developing economies.
However, many emerging market economies are far less vulnerable to capital flight risks than they were in previous decades because local investors now make up a large proportion of their stock market. This in turn gives emerging markets more stability when the global economy is under pressure and foreign investors remove their funding from these regions.
Another central factor that contributed to emerging markets stronger position last year is their proactive response to inflation. In fact, their central banks were far ahead of the Federal Reserve in the fight against inflation. As a result, many emerging economies experienced a much less severe rate of inflation than developed markets and are now in a better position to rebound quickly from last year’s downturn.
Decoupling between Beijing and Washington is another area of opportunity in emerging markets as companies start shifting their supply chains away from mainland China. In fact, many manufacturing hubs in Southeast Asia are already starting to reap the benefits from this paradigm shift. Additionally, analysts anticipate that this new trading regime will also result in stronger commercial ties between the west and developing markets outside of ASEAN like India and Latin America.
The green transition is another area of potential long-term value in these markets, and interestingly some emerging market countries are already making positive inroads by implementing sustainable land use practices and strengthening their regulatory frameworks for managing transition risks.
The green transition is another area of potential long-term value in these markets, and interestingly some emerging market countries are already making positive inroads by implementing sustainable land use practices and strengthening their regulatory frameworks for managing transition risks.
Emerging markets are also an appealing prospect for sustainable investing because many of these countries are in the early days of their industrial and urban expansion. This means that they can create greener and more sustainable cities from the outset as opposed to having to tear down and refurbish existing infrastructure.
What is your view on the prospects for emerging market investments this year?
Get the latest views and insights at our upcoming Emerging Market Investment Focus on the 2nd February - https://www.mallowstreet.com/Event/15016
