Emerging Markets Equity Commentary: April 2014

Emerging Market Equities Gain, but Persistent Slowdown in China Remains a Concern

Emerging market equity prices made healthy gains during the month of March on expectations that select countries could see more stable political and economic environments later this year. Markets that had faced the worst selloffs last year such as Turkey, Brazil, Indonesia, and India were among the biggest outperformers during the month. Russia declined further on persistent geopolitical risks, while investors remained cautious about the growth slowdown in China. The global economic outlook appears to be improving after the growth moderation seen in some of the developed countries due to adverse winter weather. Stronger consumer and industrial demand in the U.S. as well as Europe should help exports from the emerging countries.

Export data from China remained weak for the second successive month in March, and has added to concerns about a further growth slowdown. As the decline in shipments during February was partly due to the factory shutdowns for the Chinese New Year, there were expectations of a rebound in March. Nevertheless, trade data from select Asian countries for the month of March suggest that global demand is improving after the relatively weaker trends at the beginning of this year. Shipments from Korea and Taiwan were above expectations for the month and the healthy flows in export orders suggest that the gain could be sustained in subsequent months. India and Indonesia also saw moderate growth in February exports. However, Brazil continued to see lower exports in March and the country’s trade deficit widened during the first quarter. Factory output declined in China for the second successive month in March, though a government survey indicated a marginal improvement from the previous month. Brazil saw further gains in manufacturing output, while the pace of expansion slowed in Indonesia, India, and Mexico. The prospect of wider economic sanctions against the country has hurt business sentiment in Russia, where factory output declined sharply. Interest rates have been hiked further in Brazil, while India and Indonesia left rates unchanged in March.

Near-Term Outlook

The growth outlook for emerging economies remains relatively stable and could see improvement if the global economy gathers pace later this year. The International Monetary Fund has marginally lowered its emerging market growth forecasts for this year and 2015, mostly on account of the anticipated slowdown in resource exporting countries. Russia is likely to see appreciably lower growth this year while most Latin American countries as well as South Africa may see moderation in economic expansion. Asian and European countries should do relatively better. Though there are growing expectations of fiscal stimulus measures in China, it is likely that such programs will be limited in scale when compared to earlier years.

Select emerging markets with economies that are considered fragile are seeing renewed investor interest since the beginning of this year. Policy changes introduced in some countries last year following the steep correction in equity prices and currencies appear to be successful so far. Several of these countries, India and Indonesia among them, are having elections in the coming months and the possibility of stable and pro-growth governments being formed has increased. It is expected that the new governments will be able to reinvigorate these economies through a mix of reforms and policy initiatives. In Turkey and Thailand, there are expectations that the political confrontation will ease and the governments should be able to focus on stabilizing their economies. Elections held in Thailand earlier this year have been cancelled by the court, and fresh elections are likely later this year. Brazil has also scheduled presidential elections later this year. Though the current administration is expected to be reelected in Brazil, there are expectations of positive policy changes.

For a free subscription to any of our economic report offerings, please visit our Subscriptions page,or visit us at thomaswhite.com or at The New Global.

If you are a Financial Professional, we invite you to register here for our exclusive content.

To learn more about Thomas White International, watch

Capturing Value Worldwide

This article is for informational purposes only. This article is not intended to provide tax, legal, insurance or other investment advice. Unless otherwise specified, you are solely responsible for determining whether any investment, security or other product or service is appropriate for you based on your personal investment objectives and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation. The information contained in this article does not, in any way, constitute investment advice and should not be considered a recommendation to buy or sell any security discussed herein. It should not be assumed that any investment will be profitable or will equal the performance of any security mentioned herein. Thomas White International, Ltd, may, from time to time, have a position or interest in, or may buy, sell or otherwise transact in, or with respect to, a particular security, issuer or market on our own behalf or on behalf of a client account.

FORWARD LOOKING STATEMENTS

Certain statements made in this article may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements.