Asia and emerging markets – what's next and where are the opportunities

All information is correct as at 31 December 2022 unless otherwise stated.

Over the longer-term, emerging stock markets have delivered growth for investors. But it hasn’t always been a smooth ride.

Take 2022. Over the year, the broader emerging stock market fell 6.45%*, while the Asia Pacific ex Japan market lost 5.88%. As always past performance isn’t a guide to future returns.

Performance of the underlying markets has been a mixed bag. The Brazilian market rose 26.32% over the year. As a resource-rich country, Brazil has benefited from rising commodity prices, while exports of oil to Europe and the US also picked up following Russia’s war in Ukraine.

The Singaporean market also held up well over 2022, rising 22.70%. The International Monetary Fund credited strong performance to Singapore’s effective management of the pandemic, swift vaccination rollout and decisive policy support that helped the economy recover.

Its market is also made up of more value-focused industries, like financials and real estate. This helped during a year where growth-oriented sectors like technology struggled.

Vietnam was one of the worst performing emerging markets, plummeting 38.05%. This was partly due to a government crackdown on market manipulation and the property sector. A weakening currency and liquidity concerns also dampened investor sentiment.

China’s market fell 12.20% over 2022. October’s party congress, alongside the country’s zero-Covid policy, slowing economic growth and a struggling property sector have all conspired to weaken share prices.

China stuck rigidly to its zero-Covid policy for some time, leading to concerns around economic growth, exports, and how well businesses would be able to operate. More recently there’s been some easing of restrictions, which led to a small rebound in China’s stock market from the end of October.

A full reopening could be the catalyst China needs to stimulate growth, consumer spending and business activity. However, policy remains opaque and could be reversed if this opening leads to a health crisis due to inadequate vaccination levels. Longer-term growth could also be impacted by other challenges, including in the property sector.

But given how low valuations in China are, share prices could have more growth potential if investor sentiment improves. Of course, there are no guarantees, especially as many investors currently attach an even greater risk premium to investing in China.

It’s a well-known fact that emerging markets are higher risk than their developed market counterparts. And in recent years, emerging markets have faced a myriad of challenges.

These markets are constantly going through transition, and volatility is a natural part of developing economically.

There’s still a lot of growth potential, but as ever, it’s essential that investors take a long-term view.

This article isn’t personal advice. If you’re not sure if an investment is right for you, ask for financial advice. All investments fall as well as rise in value, so you could get back less than you invest.

Past performance isn't a guide to the future. Source: *Lipper IM, to 31/12/2022.

India – the jewel in the emerging market crown?

While 2022 seemed to be a difficult year for investors across the board, there was one standout exception – the Indian stock market.

There are a few factors that make India appealing to investors. India’s set to become the world’s third largest economy and stock market. It’s poised to drive a fifth of global growth over the next decade. The country’s already large middle class continues to grow, with incomes rising quickly.

Another driving force behind India’s growth story has been the country’s ability to grab hold of the global trend of digitalisation. There are now more than 700 million smartphone users in India, around twice as many as there were just five years ago.

The market has performed well in recent years versus other emerging markets. While this has been good news for those invested, it does mean that share prices typically look more expensive compared to other markets. India isn’t just expensive compared to history, it’s the most expensive market in the Asia region, trading at a significant premium to others.

But it’s fair to say that this market has been expensive for a long time. This doesn’t mean share prices don’t have further room to grow, but growth could be limited to a degree.