The election of Donald Trump as the 45th president of the United States last November initially worried emerging markets (EM) investors. The candidate’s campaign rhetoric promised trade renegotiation and other protectionist moves that would likely pressure companies across the region. He also outlined a reflationary agenda expected to result in a stronger dollar and higher interest rates in the U.S., both of which would be headwinds for EM economies. Given this, investors were convinced the new administration’s policy initiatives signaled tough times ahead for EM.
Emerging Markets are Still Breathing
Two-plus quarters have gone by since the inauguration, and emerging markets are alive and well. In fact, EM have outpaced their developed markets counterparts so far this year. The new administration has thus far had limited success in implementing its agenda, which has relieved investors’ concerns about trade wars and currency weakness for now.
The ongoing economic recovery in developed markets is the bigger story. As Europe and the U.S. continue to improve, EM have strengthened, beneficiaries of increased demand and improvement in export activity, as well as stronger local demand from emerging markets consumers and a growing middle class.
Conditions are Stable
There are ongoing reasons for optimism. Stabilization in China is a positive. Improving domestic demand and government support of public infrastructure projects bode well for EM companies. EM consumers are seeking a higher quality of life, demanding education, e-commerce, environmental services, banking and investing products, and access to health care.
Check the Vitals
It is important to note that whenever one group of stocks is pressured regardless of individual company fundamentals, this could represent an investment opportunity. A bottom-up, fundamental research-driven approach can help identify companies positioned to perform well — despite any negative headlines or general assumptions about the asset class as a whole.
Concerns about the Trump agenda will not be resolved right away. While delays have given emerging markets some breathing room, this underscores the importance of picking stocks on a company-by-company basis. We believe the long-term secular growth story in emerging markets remains intact, and EM equities should continue to provide attractive opportunities, despite transient macroeconomic headwinds.
Investment Professionals: Learn more about our growth philosophy when investing in emerging markets.
International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
The opinions expressed are those of Nathan Chaudoin and are no guarantee of the future performance of any American Century Investments fund.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.