Since releasing our Global Emerging Markets Outlook 2022 earlier this year, the asset class has experienced a multitude of events.
In light of these developments, we thought it prudent to update our outlook and provide some insights as to which sectors may face headwinds or, indeed, stand to benefit from the market environment as it is today.
Key observations include:
- A continuation of a global style rotation away from growth stocks, towards value.
- A not-dissimilar macro environment to the start of the year, with rising interest rates, inflation and the management of Covid-19 ongoing themes.
- Russia’s invasion of Ukraine played a central role and was followed by sanctions, uncertainty, volatility, as well as supply chain disruption risk especially in the energy and commodities sectors.
Given these updates, we wanted to highlight some sectors and industries which might stand to benefit from these developments and those which may find these conditions more challenging.
- Potential to benefit from tailwinds: financials, commodity-rich countries and sectors, green energy companies.
- Likely to struggle against headwinds: industrials, IT, consumer sectors.
We are confident that the long-term investment case for emerging markets remains strong and we retain high conviction in our portfolio holdings. The market consistently undervalues high quality, sustainable growth companies and despite the current style rotation we believe that in the long term, investing in these companies will yield results.
The market valuation deviating meaningfully from individual company fundamentals increases the attractiveness of emerging markets relative to developed markets in the near and long term. However, given regulatory pressures, human conflict and an ever-evolving macro environment, it is clear that a focus on strong ESG characteristics will be crucial in determining those companies who can stay ahead of the curve in the long run.
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Companies whose products and services support the green energy transition may stand to benefit in the medium term as well as the long term.
Regulatory information and risk warnings
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.
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Past performance is not a guide to future returns.
The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
Some of the information provided in this document has been compiled using data from a representative account. This account has been chosen on the basis it is an existing account managed by Martin Currie, within the strategy referred to in this document. Representative accounts for each strategy have been chosen on the basis that they are the longest running account for the strategy. This data has been provided as an illustration only, the figures should not be relied upon as an indication of future performance. The data provided for this account may be different to other accounts following the same strategy. The information should not be considered as comprehensive and additional information and disclosure should be sought.
The information provided should not be considered a recommendation to purchase or sell any particular strategy / fund / security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.
Risk warnings – Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
- The strategy may invest in derivatives (index futures) to obtain, increase or reduce exposure to underlying assets. The use of derivatives may restrict potential gains and may result in greater fluctuations of returns for the portfolio. Certain types of derivatives may become difficult to purchase or sell in such market conditions.