2023 Emerging Markets Outlook

2023 Emerging Markets Outlook: Preparing for Take-Off

By: Malcolm Dorson, Senior Portfolio Manager (US) and Rahul Chadha, Chief Investment Officer (HK)

Highlights:

  • While global growth will likely slow in 2023, Asia looks to be a positive counterweight. This is especially true for China, where we see growth accelerating as authorities soften the zero-Covid policy and introduce easing property measures. For the rest of Asia (ex-China), although headwinds from external demand still exists, the easing of financial conditions in 2023 should extend the runway for growth in domestic demand, which we expect will drive Asia’s outperformance.
  • Latin America presents an interesting market landscape. The political pendulum has swung left and, in normal circumstances, we would see these governments as significant headwinds for financial markets, but today’s landscape requires a more nuanced approach. Latin America benefits from higher energy prices and oil exports. If we see a strong recovery in Chinese GDP growth, Latin American countries should be key beneficiaries from a price rebound in materials. Perhaps most importantly, central banks in the region have been prudent in raising interest rates to fight inflation well ahead of the Fed.
  • The outlook in 2023 for EEMEA remains divided. The Middle East and North African countries stand to benefit from elevated oil prices, their USD pegs, and continued social reforms while countries within Eastern Europe remain affected by weakness in Western Europe and the war in Ukraine.

EEMEA = Emerging Europe, the Middle East & Africa.                                                               

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specified time period.

The views and information discussed in this brochure are subject to change and may not reflect the current views of the writer(s). The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the portfolios or any securities or any sectors mentioned herein. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation.

Past performance is no guarantee of future results.

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.

Market Disruption and Geopolitical Risk — Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, natural and environmental disasters, systemic market dislocations, public health crises and related geopolitical events have led, and in the future may lead, to increased market volatility, which may disrupt U.S. and world economies and markets and may have significant adverse direct or indirect effects on the value of a Fund and its investments.