EM equity looks more attractive than it’s been in a decade

Jamie Rice, CFA, Equity Portfolio Manager

The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed.

I’m often asked lately: Why are you so bullish on emerging markets (EM) equities these days? What makes the story so compelling, and what’s driving it? Let’s take a look, and while we’re at it, I’ll share my latest thoughts on China’s burgeoning A-share market.

A flood of liquidity, a sprinkle of taper

I believe the broad opportunity set in EM equities is particularly attractive today, fueled in part by the unprecedented amount of liquidity in global markets. China’s was the first EM central bank to begin tightening monetary policy. In the US, real interest rates moved unexpectedly higher recently, which has led to some market tension within EMs between prospects for stronger global growth and whether or not higher real rates will persist. Brazil and Russia are also tightening policy amid looming inflationary concerns.

A favorable global growth backdrop

Stronger global economic growth post-COVID-19 appears to be just around the corner as another potential catalyst for EM equities. The US is leading the way right now, with the rest of the world likely to soon follow suit. In fact, if all goes well, I think we may be on the cusp of one of the greatest global economic expansions of our lifetime. EM equities as a group have historically benefited from ample liquidity and robust growth, so I’m quite bullish on the asset class going forward. However, I also expect to see dispersion of returns within the asset class.

The currency factor varies by region

In addition, the “currency factor” could provide a tailwind for some EM countries and a headwind for others, creating a potential opportunity across the region. When the USD is relatively weak, US investors’ overseas returns are magnified when converted back to USD. As of this writing, the outlook for the USD is mixed. On the one hand, it’s a “risk-off” currency that may struggle as we enter a more procyclical environment. On the other hand, the USD could strengthen if US interest rates rise further.

Inside China’s A-share market

I see numerous opportunities across EM equity regions, countries, and sectors. That discussion is beyond the scope of this blog post, so for now, I’d like to just briefly highlight China’s up-and-coming domestic mainland (A-share) stock market in particular.

I believe this market is at an inflection point. With over 3,800 stocks (including some of the world’s fastest-growing companies across investable themes like digitization, consumption, and luxury) listed on the Shanghai and Shenzhen exchanges, China’s onshore market offers plenty of idiosyncratic opportunities for investors seeking risk diversification and potential return enhancement.

However, it’s a market that remains underrepresented in global benchmarks and “under-covered” by the institutional investment community (Figure 1). As of September 2020, China A-share stocks accounted for only 5% of the MSCI Emerging Markets Index — a figure that’s expected to grow to more than 20%. So, the opportunity set will only get bigger over time.


Authored by
Jamie Rice
Jamie Rice, CFA
Equity Portfolio Manager



Past results are not necessarily indicative of future results and an investment can lose value. Funds returns are shown net of fees.
Source: Wellington Management

© 2022 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The Overall Morningstar Rating for a fund is derived from a weighted average of the three, five, and ten year (if applicable) ratings, based on risk-adjusted return. Past performance is no guarantee of future results.

The content within this page is issued by Wellington Management Singapore Pte Ltd (UEN: 201415544E) (WMS). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. Information contained on this website is provided for information purposes and does not constitute financial advice or recommendation in any security including but not limited to, share in the funds and is prepared without regard to the specific objectives, financial situation or needs of any particular person.

Investment in the funds described on this website carries a substantial degree of risk and places an investor’s capital at risk.  The price and value of investments is not guaranteed and may fall or rise. An investor may not get back the original amount invested and an investor may lose all of their investment. Investment in the funds described on this website is not suitable for all investors. Investors should read the prospectus and the Product Highlights Sheet of the respective fund and seek financial advice before deciding whether to purchase shares in any fund. Past performance or any economic trends or forecast, are not necessarily indicative of future performance. Some of the funds described on this website may use or invest in financial derivative instruments for portfolio management and hedging purposes. Investments in the funds are subject to investment risks, including the possible loss of the principal amount invested. None of the funds listed on this website guarantees distributions and distributions may fluctuate and may be paid out of capital. Past distributions are not necessarily indicative of future trends, which may be lower. Please note that payment of distributions out of capital effectively amounts to a return or withdrawal of the principal amount invested or of net capital gains attributable to that principal amount. Actual distribution of income, net capital gains and/or capital will be at the manager’s absolute discretion. Payments on dividends may result in a reduction of NAV per share of the funds. The preceding paragraph is only applicable if the fund intends to pay dividends/ distributions.  Performance with preliminary charge (sales charge) is calculated on a NAV to NAV basis, net of 5% preliminary charge (initial sales charge). Unless stated otherwise data is as at previous month end.

Subscriptions may only be made on the basis of the latest prospectus and Product Highlights Sheet, and they can be obtained from WMS or fund distributors upon request.

This material may not be reproduced or distributed, in whole or in part, without the express written consent of Wellington Management.