- Constructive on Hard Currency space amid a supportive macro backdrop and attractive yields, with a selective preference for High Yield over Investment Grade.
- Local Currency debt could also benefit from more dovish EM central banks. We remain focused on areas with appealing real yields.
In this shifting world, geopolitical tensions and US election results could reshape emerging markets (EM), offering new opportunities for investors seeking additional sources of returns.
Key emerging markets themes to keep an eye on
- Growth premium favours EM, as developing economies are set to play a crucial role in driving global economic growth.
- Asia will remain a key growth engine, with India as a standout.
Source: Amundi Investment Institute. Data is as of 14 October 2024. Forecasts are by Amundi Investment Institute and are as of 14 October 2024. EM: Emerging Markets. DM: Developed Markets.
- Several EM central banks have already initiated their easing cycles, following a more advanced and orthodox stance in 2022.
- Disinflation is expected to continue, some EM central banks should continue their easing cycles.
- Expect some diverging policies between countries.
China: policy shifts reversing economic slowdown
- Chinese authorities’ have implemented a range of stimulus measures aimed at driving growth.
- We expect a fiscal package starting in Q4 2024 through to 2027.
- Prioritising support for local governments, recapitalising state-owned commercial banks, stabilising the housing market, and strengthening vulnerable groups.
Source: Amundi Investment Institute, internal elaboration, data is as of 7 October 2024.
India: economic growth continues to be well sustained
- Robust economic growth is expected to continue, driven by domestic demand and investments.
- Under Modi’s 3.0 administration, growth is becoming more inclusive, sustainable and resilient.
- Inflation is expected to remain well anchored in the upper band of the RBI’s target.
Source: Amundi Investment Institute, internal elaboration, data is as of 17 October 2024. Years refers to fiscal
Indian year.
- The US elections has been a key theme in EM for some time with the impact of a potential new wave of tariffs.
- Trump's likely policies risk triggering inflation and volatility, posing challenges for EM.
- We expect his foreign policy to be transactional. Ultimately a trade war leads to US corporates shortening or reorienting their supply chains.
- While tariffs will happen these would not be a surprise and are hard to quantify currently.
- We would expect more volatility and potentially pressure on Chinese exports to the US.
Source: Amundi Investment Institute, as of 10 October 2024. Views reflected on the table above are from Amundi Investment Institute.
EM investment convictions for 2025
Investors seeking opportunities should consider turning their attention to emerging regions, leveraging on significant growth differentials and trade dynamic.
Why EM Debt now? With Yerlan Syzdykov - September 2024
- Mildly positive on EM equities, with focus on areas with attractive valuations, stronger economic growth and an earnings recovery that is on track.
- Selective EM FX still offers good carry, and Fed’s easing stance should lend support to EM currencies.
- Light positioning should offset uncertainty from core rates and geopolitics.
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