Schroders Emerging Markets Lens June 2024: your go-to guide to emerging markets
Consensus EM earnings growth forecasts have picked up to 21% for 2024; how is the picture evolving in China?
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Our latest edition of the Schroders Emerging Markets Lens is now available.
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: Emerging Market Debt
Summary of emerging market equities:
- EM equities posted a slight gain (+0.6%) in May but lagged developed markets (+4.5%) by a wide margin.
- China is ahead of EM YTD (to end May), having rallied 21% since 22 January. Among the large index markets, Taiwan (+16%) and India (+9%) have generated the strongest gains YTD; conversely Brazil (-16%) lags (slide 14).
- Consensus expectations are for EM earnings growth to be 21% and 15% YoY for 2024 and 2025 respectively; for 2024 the figure is almost double that of the US (slide 5).
- Leading indicators continue to point to a pickup in the global goods cycle, which should be supportive of EM manufacturers (slide 7).
- 2024 EM elections now complete, with mixed outcomes (slide 8). Polls were held in South Africa in May, with Mexico and India results announced in early June.
- EM equity valuations are attractive on several levels. The discount to DM is close to the top of the 20-year range on a 12-month forward P/E basis. On a standardised composite valuation measure most EM markets ex India are cheap versus their own history (slides 18-25).
Summary of emerging market debt:
Emerging market (EM) bonds advanced in May, as US Treasury yields fell from year-to-date highs. Hard currency corporate debt continues to outperform year-to-date, with total returns from hard currency sovereign also positive. By contrast, local EM debt remains down in US dollar terms.
Hard currency emerging market debt (EMD):
- YTD hard currency performance is positive, but this masks divergent performance between the high yield (HY) and investment grade (IG) sub-sectors (slides 4-5).
- The IG sub-index spread has continued to fall and is well below the historical median. The spread on the HY index has moved further above its historical median (slide 10), primarily due to the re-inclusion of Venezuela in the index.
- In corporate EMD, both the IG and HY corporate spreads are firmly below their historical median (slide 16).
Local currency EMD:
- The average real yield premium of EM over DM is off its long-term lows. The average EM and DM real yields have both increased, with EM well into positive territory again; the average DM real yield has also turned positive (slides 34-35).
- The average local EM ex Turkey yield curve is upward sloping (slide 33).
- There are undervalued currencies in all three EM regions (slide 39), but the degree of value varies significantly.
Chart of the month:
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