When entering the site and if cookies are prevented from being saved, a message must be displayed
in a popup message box informing the user that their local browser settings are preventing
cookies from being saved and that cookies are required for the site to work. Exact text
to be provided for UAT. On OK click of the message, the user should be redirected to
the global landing page (currently ssga.com).
Seven Things to Know Right Now About Emerging Markets Equities
After several tumultuous months, emerging equity markets are rebounding – but there are still plenty of opportunities to uncover and risks to watch. Despite the turmoil, we’ve managed to find paths to outperformance during this period. As we look forward to the coming weeks and months, we’d like to share seven key points about emerging markets (EM) that are shaping our own EM equities portfolio right now.
1. Improvement in Purchasing Managers Indexes suggests that the depth of the contraction has been defined.
Uncertainty remains regarding the strength and durability of the rebound, but the fact that the conversation has turned to improvement is, in itself, a positive. This has given us greater confidence to add some back to our bank names, a sector we downsized going into the COVID-19 crisis. Asset-quality risks in the banking sector are severe, but they appear to be more than priced in at this stage. In addition, we’ve trimmed select China consumption names to manage position size on strong performance.
2. The trend toward e-commerce in emerging markets has been reinforced by the COVID-19 crisis.
Retailers with a strong e-commerce presence have experienced positive sales growth in April and May despite the COVID-19 crisis. For example, Brazil’s Magazine Luiza, also known as Magalu, registered physical store sales growth of -84% in April and -53% in May, reflecting the impact of store closures due to COVID-19-related lockdowns. Over the same period, however, Magalu’s e-commerce sales grew substantially over the same period, with total e-commerce sales growth of 138% in April and 203% in May. The increase in e-commerce sales at Magalu more than offset the effect of physical store closings, leading to 7% total retail sales growth in April and a whopping 46% total retail sales growth in May. Furthermore, this growth has been driven not just through increased volume per customer, but the addition of new customers. We expect these gains in market share to be sustained, helping our positions in Magazine Luiza and in other e-commerce names such as Mercadolibre, Alibaba, and JD.com.
3. Dominant suppliers in EM are enhancing their market positions.
Semiconductor manufacturers TSMC and Samsung are among the dominant suppliers in EM that are gaining ground in the wake of the crisis as supply chains become more localized. Samsung has a strong position and rational capex plans in dynamic random-access memory or “DRAM,” while TSMC has affirmed its long-term competitive position. China-headquartered Silergy Corp., which manufactures power-management integrated circuits, is also likely to benefit from a larger local market share.
4. The domestic consumption trend in China remains a strong play.
US/China tensions are real and remain a risk, but we believe financial interests will ultimately dictate behaviors, mitigating harsh outcomes. The best way to play China today, in our view, remains domestic consumption – a trend that seems quite durable. In addition to the Chinese e-commerce names already mentioned, we think education services firms such as TAL and communication services companies such as Netease and Tencent merit consideration.
5. China’s infrastructure goals have evolved.
Today’s infrastructure investments in China are much more focused on accelerating digitization and less so on bullet trains and subways (see Figure 5). Heightened trade tensions and the COVID-19 crisis have combined to reinforce China’s strategic plan of “Made in China 2025.” The biggest beneficiaries of this will be Greater China names as China seeks to become both producer and consumer of higher-value add products and services. The shift in focus of China’s infrastructure spending will benefit China and Asia more and the rest of emerging markets – and the world – less than in the past.
6. Global liquidity matters to EM.
The correlation of the US dollar index to the EM equities index tends to be quite solid (see Figure 6). We view EM currencies currently as inexpensive and we expect that the dollar will weaken as the crisis atmosphere normalizes. This, together with the backdrop of low yields, quantitative easing, and the US Federal Reserve providing dollar liquidity, creates a favorable backdrop for EM equities.
7. Economic growth prospects in EM can vary widely – but macro conditions don’t always drive annual stock returns.
Good companies exist in countries with weaker GDP growth. While we pursue a bottom-up investment approach, we also apply a top-down macro discipline in our investment process. There is too much variation among returns to ignore sources of risk or value signals (see Figure 7). Ensuring all macro inputs are captured through our investment process has added value in the years before and during the COVID-19 crisis, and we expect this practice will continue to add value in the years to come.
The views expressed today are the views of the individual speakers and are subject to change based on market and other conditions. All information is provided in good faith, and there is no representation nor warranty that such statements are guarantees of any future performance. Actual results or developments may differ materially from the views expressed. SSGA Global Entities Link: https://www.ssga.com/global/en/our-insights/state-street-global-advisors-worldwide-entities.html
Investing involves risk including the risk of loss of principal.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA's express written consent.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.
The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200.
All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns. Standard & Poor’s®, S&P® and SPDR® are registered trademarks of Standard & Poor’s Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation's financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.
This website is issued by State Street Global Advisor Asia Limited and has not been reviewed by the Securities and Futures Commission ("SFC").