Navigating Emerging Markets Through the Ballot Boxes

As global elections unfold, how will they shape emerging markets? Are they an entry point for investors seeking growth and diversification?

The Singapore River and Clarke Quay

Geopolitics in an election-heavy year

2024 will see 40 countries going into national elections, representing over 40% of the global population. 

 

The outcomes of these elections could affect the future economic path, and international relations, of established leaders like US/Europe and of emerging powers in Asia and Latin America.

Politics in emerging powers like China, India, and Latin America will shape global geopolitics.

 

In our view, investors looking for higher returns in emerging markets should assess country-specific factors such as political stability, public finances and economic growth.

Geopolitics in an election-heavy year

2024: the biggest election year - Data as of January 2024

Investment opportunities in a fragmented world

We are optimistic about emerging markets in 2024. 

 

After last year's rally, investors seeking opportunities should consider turning their attention to emerging regions, leveraging on their growth advantage and robust local consumption and trade dynamic.

The current outlook for the asset class is increasingly favourable, with certain emerging economies strategically positioned for growth. Projections suggests that the growth premium favouring emerging markets is likely to increase.

A source of income with appealing yields 

The current returns on emerging markets hard currency bonds is now more appealing than in previous years. With the possibility of the Fed lowering interest rates,  we maintain a positive stance on emerging markets bonds and currencies, with a selective approach and focusing on countries that have been successful in anchoring inflation and are well-positioned in the easing cycle.

Duration and yield in local currency - Data as of 30 January 2024

Room for optimism in 2024 

We are positive on the asset class, driven by several supportive factors. The growth premium is increasingly favouring emerging markets over developed markets, the capex cycle is expected to tilt in favour of emerging markets, valuations remain attractive both in absolute and relative terms, and there is a positive trajectory in the earnings cycle.

EM-DM growth (4y average) advanced by 1y - Data as of 26 January 2024

A growing theme for Emerging Markets

Increasing investor demand for green, social and sustainability-linked bonds could help achieve a green transition in emerging markets and low-income countries. In these regions, where the impacts of climate change are particularly pronounced, the growing sustainable bond market is becoming increasingly vital for their economic development.

What are the key EM themes to keep an eye on?

1. EM growth premium

In a weaker global economy, EM will remain resilient but with higher fragmentation. EM-DM growth differentials to stay wide in 2024.

2. Easier monetary policies

Some EM central banks have begun easing policies with room for more cuts. Fed support should benefit EM, but inflation remains a challenge amid energy transition, geopolitical tensions, and economic shifts.

3. Asia in focus

Asia looks to lead investments flows during the great reallocation. India’s economic outlook remains positive, while China’s GDP growth may slow to around 3% in 2025 due to structural shifts and deleveraging.

4. Risks to watch

Key risks includes geopolitical tensions and major elections in 2024. Investors need to watch out for idiosyncratic stories and internal vulnerabilities that could increase EM fragmentation.

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