Three things we’re thinking about today
- Earnings: Consensus forecasts call for 18% earnings growth for the MSCI Emerging Markets Index in 2024, which compares to a forecast 9% contraction in 2023.1 Expectations for next year have held steady since in recent months. China, Taiwan and Mexico have driven forecasts lower for this year. Looking ahead, a recovery in South Korea, Taiwan and China is expected to drive the rebound in 2024, with the technology sector the main driver.
- China’s property measures target demand: Tier-1 cities in China are lowering mortgage downpayments for second homes to 40% from 70-80%.2 Shenzhen is the second city after Guangzhou to implement the change. This follows similar cuts to downpayments for primary homes to 30%-35% earlier this year.3 Policies on home value bands, which also impact downpayments, have been raised in tier-1 cities. The changes are designed to increase housing affordability and demand.
- US dollar weakness: A faster-than-expected drop in inflation and dovish comments on interest rates by US Federal Reserve Governor Christopher Waller pushed bond yields and the dollar lower in November. The greenback has weakened 3.4% since its October high.4 A weaker US dollar creates easier financial conditions in emerging markets as central banks do not need to use interest rates as a tool to support the local currency. A declining greenback also reduces the cost of foreign currency debt in local currency terms. This eases the financing burden on companies in emerging markets (EMs).
Endnote
- Source: Bloomberg. As of November 22, 2023. There is no assurance that any estimate, forecast or projection will be realized.
- Source: E-House Enterprise Group.
- Ibid.
- Source: Bloomberg. As of November 30, 2023.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securitiesare subject to price fluctuation and possible loss of principal.
Fixed income securitiesinvolve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls.
International investmentsare subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.
There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.
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