1. Broadening market breadth. During the first half of 2023, 72% of the gains and six out of the 10 largest contributors to the gains in the MSCI Emerging Markets index were technology-related. This is a trend repeated in global equity indices, as 53% of the gains and nine of the 10 largest contributors to gains in the MSCI All Country World index came from technology-related companies. Looking ahead to the second half of the year, investors are questioning whether this trend will be repeated or if gains will be more broad-based. Technology companies are long-duration assets – more of their profits are in the distant future as opposed to the near term. This makes their performance sensitive to interest-rate expectations, with falling expectations supporting their performance in the first half-period. This implies interest-rate expectations, as well as other fundamental factors, could drive more broad-based gains in equity indices in the second half of this year.

2. Oil supply and demand. The International Energy Agency (IEA) recently updated its forecasts for world oil supply and demand, highlighting that emerging markets (EMs) are expected to overtake the Organisation for Economic Co-operation and Development (OECD) as the leading oil consumer by 2028. EMs’ share of total demand is forecast to rise from 45% this year to 48% by 2028. The OECD’s share of total demand is forecast to decline to 42% over the same period. Global demand for oil used in transportation is forecast to start declining after 2026, reflecting a pivot toward renewable energy and growth in electric vehicle (EV) sales. The OECD is seen as leading the way, but it is expected to start impacting EM demand toward the end of the decade as EV sales grow and emission rules are tightened.

3. El Niño impacts. The US National Oceanic and Atmospheric Administration has confirmed the formation of an El Niño, a climate phenomenon that results in tropical cyclones in the Pacific, wetter conditions in South America and drier conditions in India. During the prior El Nino in 2016, which was the strongest on record, drought conditions lowered crop yields and warmer oceans reduced fish stocks. This creates upside risks to inflation in 2024 in EMs, considering the high weight of food in the consumer price basket and the lagged effect of lower agriculture supplies on food prices.

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