Historically emerging markets have been seen as having their fortunes heavily tied to commodity markets.

However, reliance on big state-owned oil or mining enterprises is diminishing as emerging markets become more innovative and consumer-driven and, consequently, sectors like technology and retail become increasingly important.

There is also a nuanced picture in terms of emerging market countries’ relationship with commodities.

Some economies, like Brazil, are heavily reliant on commodity exports, both agricultural and materials. This underpinned a strong showing from the Brazilian market in the first half of 2022 as prices surged in the wake of Russia’s invasion of Ukraine.

But others are big importers of commodities. China, for example, is one of the biggest global consumers of metals and energy.

Overall, the MSCI Emerging Markets index has a combined weighting of 13.8% to energy and materials (5% and 8.8% respectively), its developed economy counterpart MSCI World has a 9.4% weighting (5.1% energy and 4.3% materials).

A 2018 World Bank report noted: ‘As emerging market economies mature and shift towards less commodity-intensive activities, their demand for commodities may plateau.

‘For the two-thirds of emerging market and developing economies that depend on raw materials for government and export revenues, these prospects reinforce the need for economic diversification and the strengthening of policy frameworks.’

This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit here

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