IN FOCUS6-8 min read

Schroders Emerging Markets Lens Q2 2022: your go-to guide to emerging markets

Our quarterly analysis highlights the most salient charts and data for emerging markets investors.

13/04/2022
Schroders-Emerging-Markets-Lens-Q2-2022-your-go-to-guide-to-emerging-markets

Authors

Kristjan Mee
Strategist, Strategic Research Group

We are pleased to introduce the Q2 edition of the Schroders Emerging Markets Lens. It consists of separate emerging market (EM) equity and debt chartbooks/presentations, packed full of data and insights to help you navigate the world of emerging markets.

The aim here is to provide an unbiased top-down view of markets, with the main focus on EM valuations. Please note that the EM debt presentation is split into sections on hard currency debt, local currency debt, and currencies.

Below is a summary of key developments in the equity and debt markets and you can find the links to both presentations here:

Emerging Markets Lens: Equity

Emerging Markets Lens: Emerging Market Debt

Summary of emerging market equities:

  • Emerging market (EM) equities have weathered the impact of Russia’s invasion of Ukraine relatively well
  • Latin American and Middle Eastern markets have been the top performers because of the tailwind of higher commodity prices. Eastern European markets are sharply lower. Chinese stocks rebounded sharply in March, but are still down for the year
  • EM index valuation is becoming neutral, with the forward P/E just above the historical median. EM dividend yield is already above the median, as EM dividends recover
  • There remains considerable variability between sector valuations in EM. Growth sectors, despite the recent correction in prices, are much more expensive than value sectors
  • EM equites are cheaper than DM equities, but the difference is not extremely large, especially on a sector neutral basis. The recent correction in the DM IT sector has reduce the discount
  • Valuations in Asia have fallen close to neutral. Because of the exclusion of historically cheap Russian market from the index, EMEA1 does not look extremely cheap anymore. Latin American stocks remain cheap despite recent gains
  • The decade of US dollar appreciation has weighed on EM equity returns. Most EM currencies have depreciated in real terms, implying emerging value, although the extent varies significantly

Summary of emerging market debt:

Hard currency emerging market debt (EMD):

  • Valuations are not overly attractive
    1. The spreads of investment grade (IG) sovereign and IG and high yield (HY) corporate indices are below their historical medians
    2. The spread of the HY sovereign index is above the historical median, as a number of smaller countries are hit by rising commodity prices

Local currency EMD:

  • Local currency EM bond yields have continued to increase in 2022
    • The key question is what impact the commodity price shock will have on inflation
  • Offer a large real yield premium over developed market (DM) bonds
    • Historically, this has led to strong performance of EM local currency bonds
  • There are undervalued currencies in all three EM regions. On average, Latin American currencies are the cheapest, whereas Asian currencies have the least appealing value

A number of EM currencies are benefitting from higher commodity prices

Subscribe to our insights

Visit our preference centre, where you can choose which Schroders Insights you would like to receive.

Authors

Kristjan Mee
Strategist, Strategic Research Group

Topics

Follow us

Please remember that the value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

This marketing material is for professional investors or advisers only. This site is not suitable for retail clients.

Issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.

Registered No: 1893220 England. Authorised and regulated by the Financial Conduct Authority.

For your security, communications may be recorded or monitored.

On 17 September 2018 our remaining dual priced funds converted to single pricing and a list of the funds affected can be found in our Changes to Funds. To view historic dual prices from the launch date to 14 September 2018 click on Historic prices.