2018 Emerging Markets Outlook: The Next Leg of the Recovery
We believe that emerging market (EM) equities are in the early stages of a multi-year recovery. In 2018, we will pay close attention to political continuity and economic stability in China, the start of a new global capital expenditure (capex) cycle, and attractive positioning and valuations for the EM equity asset class.
• Asia ex-Japan- The macro outlook for Asia ex-Japan continues to look healthy and we believe growth remains sustainable. We expect China to continue to be a key growth driver for this region and the rest of the world. Economic growth in China is likely to moderate but we remain confident in China's abilities to rebalance its economy. India has implemented reforms in the past year and that should help pave the way for stronger medium-term growth.
• Latin America- In Latin America, we are beginning to see reforms leading to growing consumer confidence, stronger currencies, lower inflation, and increased prospects for growth. We remain optimistic on Brazil and market performance should be driven by a combination of lower interest rates, a new capex cycle, lower unemployment and prospects for a market-friendly 2018 election. Mexico’s equity market faces political headwinds but the country stands to benefit from a strong US economy.
• EEMEA- The EEMEA region presents a wide-range of investment opportunities: valuation stories, structural growth opportunities and political turnaround situations. We believe Russian equities present a unique opportunity based on undervalued multiples, a stable oil outlook, and further monetary easing. Countries in Eastern Europe should continue on their robust growth trajectories based on an improving picture in Western Europe, attractive demographics, and accommodative central banks.
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.