After a mixed 2021 fiscal year, emerging countries are once again facing mixed prospects for the coming year. While some caution is in order, the opportunities are real, both in stocks and bonds.
Between the setbacks of the Chinese markets and the successive records of the Indian stock markets, the emerging markets have experienced varying fortunes in 2021. What can we expect for the year to come? We took stock with four specialists.
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Between the setbacks of the Chinese markets and the successive records of the Indian stock markets, the emerging markets have experienced varying fortunes in 2021. What can we expect for the year to come? We took stock with four specialists. For Yves Ceelen, head of portfolio management at DPAM, the difficulties of the Chinese markets can thus be explained mainly by four reasons. First “economic growth affected by the continuation of the health crisis due to a lower level of vaccinations and localized confinements which continue to be implemented”. Then a People’s Bank of China which hesitates to give an important impetus by facilitating the credit “because that could weaken its currency, while the country continues to pursue a policy of strong currency to internationalize the renminbi”. As Yves Ceelen points out, “China is also in the midst of a real estate crisis, which has an impact on the economy and consumer sentiment because the Chinese are investing a large part of their savings in this sector”. Finally, regulation of technology-related sectors has also weighed, “particularly on local stock markets.” Chinese equities are therefore now showing a substantial discount compared to their Western counterparts. The MSCI China Index is quoting less than 15 times realized earnings compared to a multiple of 23 for the MSCI World of developed global markets. For Yohan Kadri-Caillaux, co-manager of the Sepiam Global Flexible fund, this discount could offer “interesting entry points” while “the flow of bad news has been well integrated into prices and the average positioning of foreign investors is low after the major releases since the beginning of the year. In addition, we are starting to see an improvement in the economic figures. ” An opinion which is however not shared by Yves Ceelen, who believes that the discount on the Chinese markets is currently justified. Kiran Nandra, head of emerging markets equities management at Pictet Asset Management, for his part, underlines “the spreading of performances on the Chinese markets”. To take advantage of the opportunities, “it will be essential to focus on a handful of sectors, including those highlighted under the recent five-year plan, such as renewable energies, industrial internet and finance.” The Indian stock markets have stood out again in 2021, confirming that they are indeed one of the few world markets to follow (and even exceed) the infernal pace printed by Wall Street. The Bombay Stock Exchange is now worth around $ 3.5 trillion. A performance of choice that Yohan Kadri-Caillaux explains by “the investment flows to Indian markets, both from small local domestic investors (+ $ 15 billion over one year) and from foreign institutions (+ $ 31 billion over one year). year)”. Christofer Govaerts, chief strategist at Nagelmackers, also points to the importance of the technology services sector in the Indian economy, an industry that has benefited from accelerated digitization since the start of the pandemic. The recent surge in prices has strained valuation ratios, prompting Kiran Nandra and Christofer Govaerts to be cautious about Indian equities. But for Yohan Kadri-Caillaux, this high valuation is justified. “On the authorities’ side, the central bank favors growth and remains accommodating. Prime Minister Narendra Modi has announced a vast investment plan in the country’s infrastructure (of $ 1.4 trillion) which should accelerate the development of energies clean and allow the country to achieve energy independence by 2047. On the business side, we expect continued improvement in profitability in view of the reforms undertaken. ” While they disagree on the outlook for 2022 for India’s stock exchanges, the specialists we interviewed agree on the long-term potential of the second most populous country in the world. What about the South American markets now? Yves Ceelen summarizes the past year, rather contrasted. “Latin America first experienced a strong recovery thanks to the rise in commodity prices, explains the manager. But then the performance was poor. The fact that many local central banks are in a cycle of recovery rate darkens the short-term outlook. ” Kiran Nandra (Pictet) also adds that “South American stock markets are affected by economic mismanagement and political uncertainty. This is why we advocate a generally cautious stance”. For Eastern Europe, Christofer Govaerts is enthusiastic about the prospects for Eastern Europe, “the ideal choice in the emerging world with favorable growth prospects, thanks in particular to the recovery in Western Europe, and inflation relatively under control, with the exception of Turkey “. Emerging countries also offer opportunities for bond lovers, according to Yohan Kadri-Caillaux. “We see a potential for high yield corporate bonds for sustained economic growth in 2022. Issuer debt levels have fallen sharply as vaccination campaigns in emerging countries should support corporate results. with regard to valuation, spreads (yield premiums, Editor’s note) remain attractive while the markets are already anticipating a tightening of policy by the US Federal Reserve “. Effective rates reach almost 7% on average for this asset class.
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