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Emerging markets: Views from the experts
1. The Indian market was a notable outperformer over the quarter, supported by a favorable earnings outlook relative to other parts of Asia, due to a strong domestic rebound post the second wave of Covid-19. Over the longer-term, we have increased confidence in Indian earnings growth due to positive demographics creating long runways for consumer penetration and upgrading, continued private sector penetration in segments like finance and health care, digitalisation from a low base, and supply-chain diversification supported by government policy. Our interactions with the management of Indian companies indicate confidence in the ability to grow their businesses based on industry consolidation leading to improved profitability, a fresh investment cycle, government initiatives seeding new investments in higher value-add areas, and the trend of global supply chain diversification.
2. China’s government enacted new regulations in a number of industries in recent months, which has caused considerable investor concern. The regulatory changes in China were announced at a time when the country was seeing a slowdown in its economy and resurgence in Covid-19 cases, which has further weighed on equity performance. However, we believe China’s government remains committed to fostering innovation as an economic growth engine. While the short-term volatility is painful for investors, these cycles have historically not unduly impeded the long-term structural growth of the broader economy.
3. ͏͏͏The Europe, Middle East and Africa (MENA) region outperformed its regional peers in the third quarter of 2021, with all the markets in the benchmark, except for South Africa, recording positive performances. Leading the outperformers, the Czech Republic ended the quarter with double digit returns, as the easing of Covid 19 restrictions drove an economic rebound. Equity markets in Russia, Kuwait and Saudi Arabia were supported by rising oil prices. Better than expected economic growth in Russia further buoyed its stock market. South Africa’s market declined as riots in the country checked investor sentiment. A drop in metals prices also weighed on several materials stocks.