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This is a chapter from the Emerging markets: An evolving landscape paper. To read all chapters in this paper, click here.

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It is important to remember that emerging markets (EM) are not the same as ten years ago, or even the decade before that. Since the significant outperformance of the early 2000s,1 the shape of the asset class has changed. Information technology is the largest sector allocation in the asset class and commodities no longer dominate.2

Consumer-focused industries, represented by consumer discretionary stocks also represent a meaningful component of the index as we have seen tremendous growth in per-capita incomes in all of the major EM economies. Finally, we have seen the impact of the digital era as billions of consumers have been able to access new consumption opportunities within e-commerce, gaming, and digital finance.

Despite the headwinds facing EM recently, in our view, the landscape is now positively shifting and this Emerging Markets: An Evolving Landscape series will explore the key drivers with the potential to dictate the future of the asset class:

  1. The United States: Policy backdrop becoming more favourable.
  2. China: Returning to a fundamental-driven market should close the valuation gap.
  3. India: The potential of an increasing ability to drive forward earnings growth.
  4. Technology: Increasingly being valued for its global leadership.

Endnotes

  1. Source: Morningstar: MSCI EM NR USD, MSCI EAFE NR USD, MSCI USA NR USD: 31 December 2000 – 31 December 2023
  2. Source: Factset as at 21 May 2024.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results. 

Equity securities are subject to price fluctuation and possible loss of principal.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.

There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.

US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. All investments involve risks, including possible loss of principal. There is no guarantee that a strategy will meet its objective. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where a strategy invests in emerging markets, the risks can be greater than in developed markets. Where a strategy invests in derivative instruments, this entails specific risks that may increase the risk profile of the strategy. Where a strategy invests in a specific sector or geographical area, the returns may be more volatile than a more diversified strategy.

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