Fund manager at Artemis Investment Management highlights why emerging markets are making a comeback amid trade concerns
Investments in emerging markets have historically been pulled back by investors for several reasons, notably due to hugely disappointing returns post-financial crisis, a slowdown of the Chinese economy and geopolitical concerns, just to name a few.
Yet, it’s these geopolitical concerns that Raheel Altaf believes emerging markets could find reappraisal. He points to US President Donald Trump’s so-called “Liberation Day” as a seismic jolt for global markets, one that revealed just how fragile the assumptions underpinning global trade really are.
“It was unexpected,” said Altaf, fund manager at Artemis Investment Management, a UK-based investment firm. “People were expecting protectionist measures, but they weren’t expecting it on the magnitude and the breadth of what happened.”
While some of the initial measures have since been reversed, including a trade truce between US and China for 90 days, Altaf asserted the damage was already done in terms of market sentiment.
“It’s certainly created confusion, and confusion is never good for equity markets,” he said. “It’s not good for companies and their decisions on investments and how they’re going to grow their businesses in the future. If that confusion continues, you could see companies cutting their investment plans, cutting spending and that uncertainty could spiral and create a real recessionary problem. That has the potential to create contagion all around the world,” he said.
While there are certainly some risks on the horizon, Altaf said it's encouraging to see “some element of backtracking and open dialog with a desire to come up with some deals.” However, Altaf doesn’t see this as a return to the old normal. Instead, he frames the moment as the possible end of the post-globalization era.
“We all got used to free and open trade,” he said. “We got used to having low-cost producers that sat in Asia and other markets around the world and were easily able to transport those goods and products to companies in the West.”
That setup, he explained, kept inflation in check and minimized conflict in supply chains. But now, things are shifting as inflation has also started to rise and consequently, some of these events are likely to be more inflationary.
As that dynamic unfolds amid concerns about global growth, Altaf sees the potential for a more stagflationary environment, pointing to the unusual convergence of a weak dollar and weak equities.
“This is the first time in a number of years where the weakness in equity markets has also come alongside the weakness in the US dollar,” Altaf said.
Historically viewed as a reserve safe haven, the US dollar’s slide signals shifting trust in the system it anchors.
Altaf also drew parallels to the Trump administration’s first round of tariffs, where China responded by reducing its trade dependence on the US, noting their exports went from 23 per cent of total exports to the US, down to around 12 or 13 per cent.
And as for whether the trade war could bring China back to investors, Artemis noted that Chinese equities are currently priced with a heavy dose of pessimism, well beyond what can be explained by the tariffs introduced during Trump’s administration.
In their view, this overlooks strong company-level opportunities as well as the Chinese government's clear commitment to supporting economic growth and boosting consumer confidence. They also pointed out that China has made substantial efforts to reduce its dependence on the US since Trump’s first term.
That kind of strategic decoupling, Altaf argued, could now spread beyond China.
“The US has enacted tariffs on the rest of the world. The rest of the world is not putting tariffs on each other,” he said. “That’s naturally going to mean that they trade more with each other than they maybe do with the US.”
In Altaf’s view, this geopolitical fracturing makes self-sufficiency a central investment theme as he sees many emerging markets aligning with this new direction.
“If you’re dependent on trade with one particular counterparty, then there’s probably significant risks on the horizon, particularly if that counterparty is the US,” he said.
“Many of the countries that have self sufficiency are found in emerging markets today,” he added, pointing to China as an example. “China has a very wealthy population. Increasingly, they’re saving quite a lot of money, and they have a lot of spending power. They don’t need to look outside of China to thrive.”
While India also shares many of those characteristics, he pushed back against the common tendency to view emerging markets through the narrow lens of China and India. While both offer strong consumer stories and economic self-sufficiency, focusing exclusively on them, in his view, misses a broader opportunity for investors.
That’s why he argues for diversification across a wider set of economies that share similar growth characteristics but offer distinct investment dynamics.
“There are a number of economies that are quite fast growing, that have similar characteristics to those larger economies and where there’s quite exciting investment stories,” he said.
Many of these countries have “low overlap with China or with India,” and are “quite self-sufficient in terms of their economic stories,” which makes them stand out in a portfolio, pointing to regions like multiple regions including Asia, Latin America, Eastern Europe, Middle East.
He noted that Artemis’ emerging markets strategy also includes exposure to certain frontier economies, like Vietnam, which is on the cusp of being reclassified as an emerging market.
That diversity is exactly what strengthens the case for global emerging markets as an asset class, Altaf underscored. These countries are grouped primarily by a few shared traits, rapid economic growth, lower GDP per capita, and room for development in areas like urbanization and social reform.
“You’ve got a very heterogeneous collection of countries that have different equity markets and very different economic drivers,” Altaf said. “That makes them interesting and you get the real diversification benefits.”
