Medeiros adds: "Interestingly, while the economy has been rapidly softening to recessionary levels in developed markets, it has improved towards positive levels in emerging markets as highlighted by the leading Purchasing Managers Index survey.
"A better growth environment in emerging markets, led by a recovery in China, and fewer uncertainties around interest rates in the US will bring a supportive environment for emerging markets.”
Chetan Sehgal, who runs the Templeton Emerging Markets Investment Trust, says that while the impact of the stronger dollar is well understood by investors, and is certainly contributing to present negativity, he feels it is less well understood that emerging market economies are in better shape to deal with the higher debt funding costs now than has been the case in the past, mainly because they have less borrowing.
David Jane, multi-asset investor at Premier Miton, says the problem is presently exacerbated by the present slowdown in the US economy, as there have been two consecutive quarters of negative GDP growth – the technical definition of a recession.
If US consumers and businesses are forced to reduce spending, then this reduces demand in the global economy, including for goods and services exported from emerging markets.
Jane says: “In the long run you might think that resource rich emerging markets might do well. The world is short of energy, food and minerals given the lack of investment in recent years. However in the short term a strong dollar and weak US economy is generally seen as a negative for emerging markets.”
China conundrum
Chinese equities comprise a very substantial part of the global emerging markets benchmark, and for many years the strong GDP growth rate of the Chinese economy also boosted the growth of neighbouring economies, and emerging market economies that are commodity exposures.
The Chinese government’s official GDP growth target for this year is 5.5 per cent, and with the economy re-opening the brakes China effectively applied to its own growth may be disappearing, and that recovery could boost the growth prospects of the wider emerging markets, according to Sehgal.
But Kristina Hooper, global market strategist at Invesco, is cautious on the outlook for the Chinese economy.
She says: “The property market in China is increasingly problematic, and it is weighing on the country’s overall economy. Home prices are falling, many housing projects have stalled, and an increasing number of property owners are refusing to pay the mortgages on their properties currently under construction.
"However, China’s politburo did meet last week and pledged to support the property sector, including ensuring that unfinished building projects are completed."
