The overall economic and political picture across emerging markets is arguably the best it’s been in years, despite an unpredictable geopolitical environment and the prospect of rising interest rates across developed markets. The synchronised growth of both emerging and developed markets bodes well for the sustainability of the growth outlook.
Figure 1: Positive EM growth surprises led by Asia, while DM surprises led by US recently
Source: Haver, 12 October 2017. For further information on investment process, please see the Important Information section.
In addition, the evidence suggests that an increasing number of emerging market countries are implementing policies that reflect a long-term approach. It’s heartening to see governments and companies managing their finances in a more disciplined and prudent manner.
Some of the changes we have observed indicate real efforts to improve the longer-term institutional framework of many key emerging market countries, resulting in a more promising investment environment for both emerging market equity and fixed income assets.
Policymakers are beginning to drive significant positive changes in key economies such as Brazil, China and India.
“A current account measures the transactions between one country and the rest of the world in goods, services, primary income and secondary income.” – US Department of Commerce.
Emerging market current accounts have recovered meaningfully over the past few years after a long and slow period of readjustment. The significant currency devaluations within emerging markets that began in 2013 provided a necessary condition for their gradual repair. Emerging markets have shown resilience during these tough times and we believe their economies are in much better shape as a consequence.
Current account dynamics remain supportive
Figure 2: Current account dynamics remain supportive
GDP weighted EM ex-China current account (%GDP)
Source: Haver Analytics, Investec Asset Management, 30 June 2017.
Since the election of Donald Trump as US president, there has been a tilt towards populist political figures in other parts of the world. As a result of Trump’s victory and the changing global political landscape, we see increased risks. While we expect periods of volatility sparked by policy uncertainty, we believe the market has underappreciated the resilience of emerging market assets. The normalising in emerging market currency and debt markets is encouraging and we are confident that positive momentum in emerging market countries will continue to support markets.
Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income.
payments nor repay the money they have borrowed. The worse the credit quality of the issuer, the greater the risk of default and therefore investment loss.
Equity investment: The value of equities (e.g. shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g. bankruptcy), the owners of their equity rank last in terms of any financial payment from that company.
Developing market: Some countries may have less developed legal, political, economic and/or other systems. These markets carry a higher risk of financial loss than those in countries generally regarded as being more developed.
Investing in China: Investment in mainland China may involve a higher risk of financial loss when compared with countries generally regarded as being more developed.
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