Investment Outlook

Bright Spots Emerge in Global Markets

In the world of emerging markets, August saw equities take a hit due to underwhelming economic data from China and the relentless strength of the US dollar. However, in the wake of these setbacks, Beijing has stepped up with additional policy support, and there are signs of marginal improvements in key economic indicators.

China's economic trajectory remains a pivotal factor influencing the overall performance of emerging markets. Recent policy responses by Beijing have begun to show promise. Late in August, the Chinese government introduced measures aimed at stimulating the housing market, including a reduction in mortgage down payment ratios and adjustments to the "first-time homebuyer" criteria. These actions have had a discernible impact, and various economic indicators, such as manufacturing activity and inflation, appear to be stabilising. Analysts anticipate that the full impact of these policies will become more evident in the upcoming data releases, and there is growing confidence that China may come close to achieving its official GDP growth target for the year.

Yet, while China commands a significant share of the MSCI Emerging Markets Index, comprising around 30% of the benchmark, there's more to the story. The other 23 markets that make up the remaining 70% of the index have collectively outperformed MSCI China. This year alone, the MSCI EM ex-China index has outpaced MSCI China by over 15%, and the gap extends to a substantial 36% since the start of 2021.

Looking beyond China, India and Indonesia emerge as attractive prospects within the realm of emerging markets. India, as the world's most populous country, is poised to contribute significantly to global economic growth, accounting for an estimated one-fifth of it over the next three years. The rapid growth of India's working-age population, set to reach 82.6 million by 2030, positions it to become the third-largest economy globally by the end of the decade. Meanwhile, Indonesia maintains a robust domestic economy, buoyed by external surpluses and a surge in foreign domestic investment. Over the past four quarters, Indonesia has witnessed foreign direct investments totalling USD 21.6 billion, solidifying its status as the second-largest destination for foreign investments in Southeast Asia.

In light of these developments, emerging market equities retain their appeal within the broader global investment landscape. Within Asia, China, India, and Indonesia stand out as tactical favourites for investors.

The potential for growth and resilience exhibited by India and Indonesia underscores the diversification opportunities available in emerging markets, emphasising that there's more to this story than just China's performance.