Emerging Markets 2024: Unlocking value in uneven terrain

Navigating the evolving landscape of emerging markets - Insights and projections from industry experts

Emerging Markets 2024: Unlocking value in uneven terrain

This article was provided by William Blair.

Rising global rates, a strong U.S. dollar, and tightening liquidity conditions have weighed on sentiment in emerging markets (EMs). But EMs may be regaining their footing as easier monetary conditions could drive growth in 2024 for both equities and debt alike. Any recovery, however, is unlikely to be uniform.

We interviewed five of our colleagues about what’s in store for this year, from China and the global macro landscape to emerging markets equities and emerging markets debt. For more insights, read the full white paper.

Olga Bitel, partner, global strategist, says that if the U.S. Federal Reserve adjusts its “neutral” monetary policy stance to be in line with meaningfully lower inflation and does so in a timely manner, and if the European Central Bank follows suit in Europe, the world’s principal demand centers can maintain modest but sustainable economic growth in 2024.

“In that case, risk assets could continue to perform well, in our opinion, although perhaps less well in aggregate than in 2023,” she says. “In other words, 2024 may be the first year of “normal” economic expansion post-COVID.”

That could set the stage for a rebound in emerging markets equities. “In addition to providing an attractive valuation environment, we believe EMs are the most efficient way to access some of the world’s most powerful secular themes: India’s emerging middle class, surging demand for artificial intelligence, and the near-shoring of supply chains,” says Todd McClone, CFA, partner, portfolio manager.

As for emerging markets debt, Marcelo Assalin, CFA, partner, and head of our emerging markets debt team, says, “Over the past couple of years, the sharp adjustment of policy rates around the world has weighed on fixed income and proved particularly challenging for EM debt. But after a few years of lackluster investment performance, we anticipate a strong 2024 for the asset class.”

China is a unique case, and “it’s clear that Chinese equity investing is no longer a beta story as China’s economy is decelerating and geopolitical risks are rising,” says Vivian Lin Thurston, CFA, partner, portfolio manager. “We believe this backdrop calls for a highly selective approach to finding quality growth companies in sectors that can overcome the structural and cyclical headwinds.”

Taking a different angle, Clifford Chi-wai Lau, CFA, portfolio manager, says that “investing in the Chinese property bond market is challenging, but we see light at the end of the tunnel. Although the opportunity set has narrowed significantly, we expect surviving developers to be less levered and more cautious about their future development, resulting in a healthier investment environment.”

As a new economic cycle unfolds, we expect the heterogeneous dynamics and secular trends that drove performance in 2023—such as the divergent trajectories of China and India, demand for artificial intelligence (AI)-related hardware, and the reshaping of global supply chains—to continue to shape market terrain in 2024.

You can access the full white paper here