Asia and emerging markets sector review – improved growth outlook

The first half of the year has been turbulent. Characterised by jitters in the global banking system, inflationary pressures, and rising interest rates. Amidst these challenges, there have still been moments of optimism.

The International Monetary Foundation (IMF) recently revised their 2023 GDP growth forecasts for emerging and developed markets, with upgrades across countries like India, Brazil, and Mexico. The growth outlook for China stays unchanged though, with GDP expected to rise by 5.2%.

Source: IMF, 2023

Other positive developments include India's announcement of ambitious plans to domestically produce semiconductors, positioning themselves as competitors to established global leaders like Taiwan, the US, and Japan.

Nevertheless, right now the fortunes of China remain front and centre in emerging and Asian markets.

This article is not personal advice. If you’re not sure what’s right for you, please ask about financial advice.

Year of the Rabbit - one to forget for China?

The Year of the Rabbit is commonly associated with the gentle and serene. But, for investors in the world's second-largest economy, 2023 so far has been far from tranquil.

After finally lifting covid restrictions in January, a surge of pent-up demand and record levels of household savings accumulated during lockdown were thought to be the driving force behind lacklustre growth.

At first, the Chinese stock market experienced a remarkable resurgence, yet the recovery was short-lived. Counter to expectations, Chinese consumers have prioritised saving over spending, resulting in a savings rate nearly three times higher than that of the United States.

All eyes now turn to policymakers, who have promised to reinvigorate the economy. Some measures are already underway, with China's central bank cutting interest rates, a move aimed at stimulating growth. This is a stark contrast to Western counterparts who have continued to hike interest rates. The effectiveness and extent of the support needed is still uncertain, and as Pan Gongsheng assumes his new role as the head of the People's Bank of China, many challenges lay ahead.

IS IT TIME TO INVEST IN CHINA?

How have stock markets performed?

Asian and emerging stock markets have struggled to keep pace with the broader global stock market over the past year (to the end of July). The FTSE Emerging and FTSE Asia Pacific ex Japan indices have risen by 2.56%* and 3.36%, respectively. Meanwhile, the FTSE World Index has risen by 8.03%. As always past performance isn’t a guide to future returns.

Unsurprisingly, China has been the standout underperformer over this period, falling 10.22%. Since China accounts for a significant part of the FTSE Emerging and Asia ex Japan indices, it can have a substantial impact on the overall performance of the indices.

Some of the other large regional stock markets like Australia, India, and Taiwan have all delivered some positive returns but have still lagged behind the global stock market.

There have been some exceptions though. President Erdogan's victory in the May election has revitalised international interest in Turkey. After experiencing record lows in the value of the lira (the Turkish currency), a shift in economic policy has reignited the appeal of investing in Turkey. This has seen the FTSE Turkey Index soaring 77.62% higher over the past 12 months. Another notable outperformer is Brazil, with the FTSE Brazil index rising by 22.02%.

Asian and emerging stock markets - one year performance

Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2023.

Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2023.

If you’re looking to invest in emerging markets and are happy with the higher risk associated with it, we think a broad global emerging markets or Asian fund is likely a good starting point. Other funds could then be added to a portfolio for more exposure to a particular theme, area, or country. When investing here though it’s essential for investors to take a long-term view of at least five years.

How have Wealth Shortlist funds performed?

Asian and emerging markets Wealth Shortlist funds have delivered mixed performance over the year. We usually expect this. A range of managers with different strengths, styles and areas of focus will perform differently in different economic conditions.

Remember, past performance isn’t a guide to the future, and this is performance over a short time. All investments fall as well as rise in value, so you could get back less than you invest.

Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

For more details on each fund and its risks, please see the links to their factsheets and key investor information below.

Jupiter India

Over the past 12 months Jupiter India was the strongest performer of our Asian and emerging market Wealth Shortlist funds. The fund returned 17.81%* vs 4.93% for the IA India/Indian Subcontinent sector with travel and tourism stocks helping performance alongside an underweight position to some of the larger technology companies. The managers adopt a GARP (Growth at a Reasonable Price) approach which means they look for companies that grow their earnings consistently, and whose shares can be bought at a price they don’t think reflects this earnings potential.

Stewart Investors Indian Subcontinent Sustainability

Our other Indian focused fund, Stewart Investors Indian Subcontinent Sustainability also outperformed the sector average, rising by 7.38%. You can read our recent update on the fund to find out more.

Managers Sashi Reddy and David Gait hunt for companies with robust financial strength and sustainable growth prospects. They put great emphasis on the people and culture within businesses, only choosing to invest in companies led by management teams they trust and deem to have integrity.

Abrdn Asia Pacific Equity

The weakest performer of our Wealth Shortlist Asia and emerging market funds was the abrdn Asia Pacific Equity fund which fell by 4.96% vs a 0.41% increase for the IA Asia Pacific excluding Japan sector. Stock selection in China weighed on returns, alongside an overweight position to Hong Kong and underweight to Taiwan.

The team's investment philosophy is based on 'long-term quality'. They believe most investors underestimate the sustainability of returns that many high-quality companies can make. They aim to find companies which can generate long-term growth, that have been overlooked by others, and hold onto them for many years.

FSSA Greater China Growth

The second weakest performer of our Asian and emerging market Wealth Shortlist funds was FSSA Greater China Growth which fell by 2.08%. While it’s always disappointing to lose money, the managers conservative approach and focus on quality means we would expect the fund to outperform in this environment. So, it’s encouraging to see it held up much better than the IA China/Greater China sector return of -9.48%.

Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2023.

FIND OUT More about Jupiter India, including charges

Jupiter India Key Investor Information

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FIND OUT More about Stewart Investors Indian Subcontinent Sustainability, including charges

Stewart Investors Indian Subcontinent Sustainability Key Investor Information

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FIND OUT More about FSSA Greater China Growth, including charges

FSSA Greater China Growth Key Investor Information

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FIND OUT More about abrdn Asia Pacific Equity, including charges

abrdn Asia Pacific Equity Key Investor Information

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