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2019 Emerging Markets Mid-Year Outlook
A Silver Lining Amid Global Uncertainty
We believe that emerging market (EM) equities are in the midst of a multi-year recovery, continuing to take advantage of the current volatility to increase positions in high-conviction secular stories. We see favorable conditions in the form of a dovish US Federal Reserve (Fed), a weaker US dollar outlook, a Chinese economic stimulus and an eventual US-China trade resolution.
Asia ex-Japan – Asia ex-Japan valuations are currently at an attractive level and we see compelling risk-reward opportunities. China remains an attractive structural story, despite the headline risks. We expect Chinese policymakers to roll out further measures to support the domestic economy and anchor market expectations. In India, Prime Minister Modi’s re-election win should be positive for the Indian equity market as it provides stability and continuity for his development agenda.
Latin America – Latin American countries continue to benefit from higher commodity prices and improved governance. After elections in many countries across the region last year, the focus has now shifted to policy implementation. Our long-term outlook for Brazil remains constructive. Brazil is coming from a low earnings base, valuations remain attractive, and we see key catalysts for a near term country re-rating.
Eastern Europe, Middle East and Africa region (EEMEA) – EEMEA presents a diverse opportunity set. Countries like Russia, Saudi Arabia, and the United Arab Emirates should benefit from both higher oil prices and low inflation. Elections in South Africa and Greece will likely lead to more market-friendly policies. Overall, valuations are attractive, political backdrops seem to be improving, and we believe that the region is set for solid performance in the second half of the year.
Fig.1. Asia ex-Japan Trailing P/B
Fig.1. Source: Credit Suisse (2019)
July 11, 2019
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