Pressure in Emerging Markets
Investment in emerging markets has historically been a rough ride, with market volatility, geopolitical concerns, tight liquidity, and changes in benchmark indexes all contributing to the challenges faced by investors. However, with this comes endless opportunity and potential for growth. In this blog post, we will explore these challenges in more detail and examine the impact China's economic performance has on key markets like Vietnam.
Global economic activity in the second quarter has been relatively positive, according to analysis from Gramercy. The EM stocks index is now set to end the first half of 2023 with gains of 3.2%, which is still a welcome surprise from declines of over 22% last year.
Investors have dialled down their hopes from the start of the year about China’s post-COVID recovery, while some central banks in the region have started to pause on their interest-rate hikes, giving way to more optimism for the second half of 2023.
As the world grapples with post pandemic outcomes, many are turning their attention towards alternative investment models that will not only help the environment but also aid economic growth.
China's economic performance has a significant impact on markets like Vietnam. Efforts towards domestic growth present potential benefits for ASEAN countries that export to China or are part of its supply chain. These changes may take some time to materialize, however, with dependence on a rebound in the Chinese economy.
While the increasing role of ASEAN countries in the global supply chain presents an opportunity for investors, these countries still face hurdles that need to be addressed. Small economies, limited listed companies, lower liquidity, and price volatility are all factors that need to be taken into consideration. Specific examples like Vietnam's attractive consumer companies highlight the challenges that growing investor interest can pose.
China's influence on emerging and frontier markets indices, such as the MSCI Emerging Markets Index, is crucial to keep in mind. Any index changes can impact countries like Vietnam and result in challenges when transitioning to larger indices. The shift to active management by some money managers presents potential benefits and flexibility in response to market conditions.
Pakistan’s sovereign dollar bonds rallied after the International Monetary Fund reached a staff-level pact with the South Asian nation on a $3 billion stand-by arrangement, just as it was on the brink of default.
Investors must understand that while indices provide insight, they don't give a complete picture. Diligent research and due diligence are imperative in emerging and frontier markets. Highlighting positive trends and investment opportunities in regions such as Eastern Europe and Persian Gulf countries should serve as a positive reminder to investors. It's crucial to remember the core challenges in these emerging and frontier markets, such as low liquidity, and the importance of evaluating companies individually.
In conclusion, investing in emerging markets presents challenges, but it also provides an opportunity for growth and environmentally-conscious solutions. Understanding China's economic performance's impact on key markets like Vietnam, examining the obstacles faced by investors, and referencing specific examples and trends should serve as a guide for exploring the opportunities to invest in emerging markets.
