The impact of US growth on the resurgence of emerging markets
“The resilience and recovery of emerging markets in the face of evolving geopolitical tension is now evident as investors look beyond fears of rising US interest rates, the impact of President Trump’s reform agenda and China’s economic transition.
“Emerging economies have already largely adjusted to forthcoming interest rate rises from the US, with currencies and equity markets having now rebounded substantially. This has been further supported by reformist, business-friendly governments in many countries.
“In addition to a cyclical recovery in commodities, which supports certain emerging markets, the secular shift towards innovation, technology and consumption has resulted in high-growth investment opportunities in sectors vastly different from the traditional “old economy” industries such as coal or iron ore mining, telecom and cement industries that succeeded in the past.
“The recent improvement in emerging-market fundamentals is helpful for continued strength in emerging-market equities, with these markets appearing undervalued relative to developed markets. At the stock level, valuations remain attractive, and we have recently seen an inflection point in corporate earnings, which are now accelerating, reinforcing the potential for longer term outperformance of the asset class.”
Carlos Hardenberg, Lead Portfolio Manager, Templeton Emerging Markets Investment Trust (TEMIT)