Last year was not an easy one for emerging market (EM) investors, as a variety of macro factors (rising interest rates, inflation, a strong dollar) combined to make for a strong headwind. It’s likely that those themes abate this year, as inflation seems to be approaching a peak and with it the expectation of fewer interest rate rises. The dollar has also weakened somewhat, which is the first of three factors that we believe lay the groundwork for better returns from EM this year.

The second is developments in China. It’s ‘zero-Covid’ policy became increasingly unsustainable last year, culminating in rare public protests and an eventual end to the policy late in the year. The prospects of an economic and societal ‘reopening’ for China has helped provide support for EM equity indices over the last three months. The scale of its impact could be very significant indeed – over the course of the lockdowns around $5 trillion of additional household savings has been accumulated (that’s 1.5x UK GDP) – that’s a lot of potential ‘revenge’ spending. Obviously, we don’t expect those excess savings to be deployed in one go – it will take time for consumption to ramp up– but nevertheless it should provide some valuable buoyancy to growth in China and the region.

Thirdly, it’s also important to note the likelihood for a prolonged growth differential between EM and developed markets (DM), as EM countries just don’t have the same issues with inflation nor the same pressures on central banks to hit the brakes on growth. EM is expected to grow 4% this year, according to the IMF. This compares to 0%-1% in most of the developed world. This is a situation that has historically boded well for the performance of EM assets.

Returning to the subject of China, it is apparent that a major focus for the government is to bring growth back after three years of very restrictive lockdowns. The goal is for China to be a middle-income country by 2035, which entails a doubling of its GDP per capita from c.$10,000pa to over $20,000pa. The road to get there will create a vast array of opportunities for corporates across all sorts of sectors such as life insurance where growth tends to accelerate when GDP per capita goes above $10k. More disposable income also means more leisure activities and travel. Meanwhile China’s beauty and aesthetic medical market is one of the fastest growing in the world. As active investors across emerging market equities, including of course China, these are some of the areas we are identifying attractive long term investment opportunities.

Finally, there is much talk in the news about tensions between the US & China: trade wars, tariffs, geopolitics. It is interesting and perhaps surprising to note however that, beyond all the headlines, trade between the US and China continues to grow. In fact, 2022 marked an all-time high between the two countries. China’s competitive advantages in global supply are proving difficult to challenge.

The value of active minds: independent thinking

A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

Important information

This document is intended for investment professionals* and is not for the use or benefit of other persons, including retail investors, except in Hong Kong. This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. For investors in Hong Kong: Issued by Jupiter Asset Management (Hong Kong) Limited (JAM HK) and has not been reviewed by the Securities and Futures Commission. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI/JAM HK.

 

*In Hong Kong, investment professionals refer to Professional Investors as defined under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and in Singapore, Institutional Investors as defined under Section 304 of the Securities and Futures Act, Chapter 289 of Singapore. 185