Investors should consider broadening their horizons beyond China for exposure to emerging markets (EM) as a combination of several factors may have relegated the nation from its role as a primary driver of the sector, according to a global investment firm.
American Century Investments co-chief investment officer of global growth Patricia Ribeiro noted China’s cautious approach to injecting funds into its economy, coupled with forecasts of lower-than-expected growth, is reshaping the landscape for those contemplating investments in emerging economies.
“EM countries have been far more prepared and sophisticated in their approach to address inflation via monetary policy this time around then in previous cycles. China has evidently been a big part of EM’s rapid growth over the last multiple decades, albeit is arguably facing different economic conditions than previously,” Ribeiro said.
“For context, during the global financial crisis, China really led the growth globally; it grew very fast, but then they had their own inflation challenges and had to reverse course pretty aggressively. China is not going to do that this time. It has already shown it has no intention of being aggressive in any kind of stimulus.
“China doesn’t have an inflation problem and has low rates, but the challenge is it’s not growing as expected. China will continue to adopt small, very targeted stimulus, which will tick up growth slightly and certainly not the rate of growth as we have seen in the past.”
In contrast to China’s cautious stance, she suggested considering investment prospects in diverse emerging economies such as India, Brazil and the Middle East, where central banks have been raising interest rates during the current recession, which will fuel growth as inflation is forecast to fall in 2024.
“The rest of EM is doing well regardless of how China is doing. If you look at other parts of EM, India, for example, the economy is growing and the consumer is spending, so there’s tremendous opportunities for investments there,” she said.
“If you look at Brazil, rates are coming down, the consumer is starting to pick up again. These are the countries that grow from within – not from eternal drivers. The whole Middle East region is also benefiting from government changes and the opening up of the tourism sector so there are opportunities there too.
“Investors need to therefore consider EM country by country – there is no longer just one that’s going to take over. China is no longer expected to carry EM growth; there are other developments across major economies in EM that have real sustainable growth ahead of them.”''