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Emerging Markets pacing ahead?

While acknowledging the difficulty of predicting growth in 2023, IMF has just published its key forecasts for developed and emerging markets.

Date published
21 Feb 2023
Tag

Key:
EM: Emerging Markets
DM: Developed Markets


The IMF expects that the emerging markets will outgrow the advanced economies, forecasting 4.0% GDP growth for EM and 1.2% for DM1. The entire global growth estimate is nearly 3.0% for 20231. Within that, China and India are expected to be key drivers of this, contributing close to 50% of that growth projection1.

Figure 1: latest world economic outlook growth projections Real GDP, annual percentage change



Source: IMF, World Economic Outlook Update, January 2023

Note: For India, data and forecasts are presented on a fiscal year basis, with FY 2022/23 (starting in April 2022) shown in the 2022 column. India's growth projections are 5.4 percent in 2023 and 6.8 percent in 2024 based on calendar year.

1Source: IMF, Jan 30, 2023, article entitled Global Economy to Slow Further Amid Signs of Resilience and China Reopening

With growth expectations accelerating for the asset class and the sector we find that the current outlook in 2024 and beyond is to “fade the growth.” This aligns with our team’s view that the sustainable growth path for these names could be more significant.

Figure 2: estimated contribution to world GDP growth
(percent share of world growth)

Figure 2

Source: IMF, Jan 30, 2023, article entitled Global Economy to Slow Further Amid Signs of Resilience and China Reopening.

Given the backdrop of forecasted slowing growth in advanced economies, we are also seeing a wide divergence between company growth dynamics across DM and EM corporates. Specifically in digital economy stocks we are seeing a wide range of expectations for growth in the US vs China.

What we have observed is that the news around Covid related restrictions diminishing has been a net positive for Chinese Internet stocks.

As highlighted below, Chinese online advertising and ecommerce will grow sharply in 2023 vs 2022. The implications are positive for the Chinese information technology sector.

This stands in sharp contrast to digital economy names in the US where the forecast growth rates are decelerating in both online advertising and e-commerce.



Figure 3: online advertising and ecommerce, China vs US, 2019-2024

20192020202120222023(E)2024(E)
US Online Advertising 16% 12% 35% 10% 6% 15%
US Ecommerce 15% 41% 11% 7% 5% 10%
China Online Advertising 28% 30% 26% 4% 12% 12%
China E-commerce 26% 24% 27% 9% 12% 12%

*E= Estimate*

Source: Morgan Stanley, as at 30 January 2023, article 2023 Outlook: Macro, Micro and Key Picks, 2023 China Internet Outlook.


  • With growth expectations accelerating for the asset class and the sector we find that the current outlook in 2024 and beyond is to “fade the growth.” This aligns with our team’s view that the sustainable growth path for these names could be more significant.
  • Valuations for Chinese internet stocks are still undemanding relative to their long term history.

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