GLIN - Emerging Market Insights: Seeds Of Optimism
2024-04-05 04:05:00 ET
Summary
- Purchasing manager indexes in China rebounded in March, with the Caixin/S&P Global index reaching its highest level in over a year.
- India will go to the polls on April 19, with voting in the general election continuing over six weeks.
- While Egyptian equities rose after the country clinched deals with the United Arab Emirates and the International Monetary Fund, it was still a laggard for the period.
Three things we are thinking about today:
- China-Signs of a rebound: Purchasing manager indexes in China rebounded in March, with the Caixin/S&P Global index reaching its highest level in over a year. Drivers of the rebound included rising raw material purchases and inventories. Chinese industrial companies may be restocking ahead of the government's planned 20% increase in special bond issuance this year to US$680 billion. The increase in special bond issuance is linked to the official gross domestic product ((GDP)) growth target of "around 5%" in 2024.
- India confirmation of election date: India will go to the polls on April 19, with voting in the general election continuing over six weeks. The incumbent Bharatiya Janata Party (BJP), led by Prime Minister Narendra Modi, is expected to win comfortably. Investors are focusing on whether the party and its partners can win 358 seats - or a two-thirds majority in the lower house - which will enable them to make constitutional changes.
- Emerging market valuations: The price-to-earnings discount for emerging markets ((EM)) relative to developed market ((DM)) peers was 35% in March. Historically, EM trades at a valuation discount to DMs; however, the gap has widened over the past 12 months on a narrowing of the GDP growth differential and higher DM earnings growth. Looking ahead, the GDP growth differential may widen in favor of EM. In combination with higher earnings growth this year and next, we think these factors could act as a catalyst for investors to reassess their allocations to emerging markets, potentially leading to increased fund inflows and improved equity market performance.
Outlook
A recent survey of the Templeton Global Investments' portfolio management team highlighted expectations for higher EM earnings growth for 2024, compared with the prior year. This could help to drive performance for EM, complementing the growth opportunities from long-term investment themes....
Emerging Market Insights: Seeds Of Optimism