James Sullivan, head of partnerships at Tyndall, says: “The broad emerging market universe doesn’t look expensive, but it is the dollar that is its puppet master right now. Ascertaining the true value of a market that is intrinsically linked to a foreign currency is fraught with jeopardy.
"It is estimated that US dollar credit to non-banks outside the US stands at $12.6tn (£10tn), which represents 14.8 per cent of world GDP, up from less than 10 per cent in 2007.
"With the US to begin quantitative tightening in June, paired with the forecast for Fed funds rate increases, one can conclude without too much difficulty that the dollar could go higher from here. This is a recipe that makes for a rather unpleasant outcome.
"As George Orwell might have proclaimed, all emerging markets are equal, but some are more equal than others. Choose carefully.”
Beta max
Simon Edelsten, Global Select strategy manager at Artemis, says he has had very little invested in emerging markets for quite some time due to concerns about the global growth outlook, and feels that even if the Chinese economy does recover from here, the pace of growth, even at the peak of the next cycle, will be lower than has been the case over the past decade.
Payne says the zero-Covid policy that the Chinese state is presently pursuing “has become a prison”, and notes the country’s policymakers continue to target 5.5 per cent GDP growth this year, a number which he feels it is unlikely to hit.
The outlook for China is acutely important for emerging market universe, not simply because Chinese stocks are a major part of the index, but also because China is a substantial consumer of the commodities produced in other emerging economies, while Chinese tourism boosts economic demand in South East Asia.
Kamil Dimmich, fund manager at Pacific Asset Management, says that while the market is well aware of the negatives surrounding the investment case for Chinese equities right now, the opportunity may come from the fact that policymakers in that country are now announcing fiscal stimulus measures in order to boost growth, and this will boost both the Chinese stock market and emerging market economies as a whole.
Hugh Young, veteran Asia equities manager at Abrdn, says: “Stagflation is rippling through Asia right now as it is rippling through so many other parts of the world. Economically, China has come off the boil. And really, it is impacting the performance of emerging market equities.
