2017 Emerging Markets Mid-Year Update: A Synchronous Recovery
• Looking forward to the second half of the year, we are paying close attention to political events, central banks across the globe, Chinese tightening, and the valuation and growth differential between emerging and developed markets. Overall, we expect EM equities to continue outpacing DM equities on account of positive momentum, higher growth rates, and attractive valuations.
• Asia ex-Japan: Emerging Asia should continue to benefit from a synchronous global recovery. We expect growth in export-oriented economies such as China, Hong Kong, and South Korea to be stronger than in more domestic-oriented economies such as the Philippines and Indonesia. In our view, the overall environment will remain supportive of an upturn in nominal GDP growth, which should, in turn, give companies an incentive to invest.
• Latin America: After a long period of populist rhetoric and left-leaning wealth redistribution, Latin American governments seem to be shifting back to prudent and fiscally responsible policies. We are seeing reforms that lead to greater consumer confidence, stronger currencies, lower inflation, and increased prospects for growth.
• EEMEA: We believe the countries in Eastern Europe have the strongest earnings prospects for the second half of 2017. Russia is well positioned to benefit from rising oil prices and lower domestic interest rates and CE4 countries (Czech Republic, Hungary, Poland, and Romania) are benefitting from economic growth returning to Western Europe.
Investment Considerations — There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including the potential of loss of principal.
Emerging Markets Risk — The risks of foreign investments are typically greater in less developed countries, which are sometimes referred to as emerging markets. For example, political, legal and economic structures in these country may be changing rapidly, which can cause instability and greater risk of loss. These countries are also more likely to experience higher levels of inflation, deflation or currency devaluation, which could hurt their economies and securities markets. For these and other reasons, investments in emerging markets are often considered speculative. Similarly, investors are also subject to foreign securities risks including, but not limited to, the fact that foreign investments may be subject to different and in some circumstances less stringent regulatory and disclosure standards than U.S. investments.