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Written by: Mary Park Durham
Emerging market equities sold off along with other markets in early August. However, they have since rebounded 8%, bringing YTD performance to 11%. While China lags due to ongoing economic challenges, recent developments have sparked a small recovery. Meanwhile, EM ex-China equities, especially Taiwan and India, are experiencing very robust performance, soaring 30% and 27% YTD and outpacing the U.S. by 5% or more. What factors are driving these major emerging markets, and can this stellar performance continue?
Investors should be aware of the latest developments in EMs:
- China: Chinese leaders recently announced one of the largest sets of monetary easing measures in years, primarily targeting the property market. Key measures include:
- A 50 basis points (bps) cut to the reserve ratio requirement (RRR),
- An average of approximately 50bps cuts to outstanding mortgage loans, and
- Reducing the 7-day reverse repo rate from 1.7% to 1.5%, among other measures.
These changes may indicate a more aggressive easing stance from the government. However, to support future home prices and domestic consumption, additional fiscal support is likely required. Local markets reacted positively following the announcement, rising 4%. Continued government easing through year-end could potentially end China’s streak of negative performance.
- India: Indian equities hit another record high this week and are up an impressive 27% YTD. Top of mind for investors is the upcoming easing at the Reserve Bank of India’s October meeting, with markets pricing in an 82% chance of a cut. This potential easing, combined with existing structural themes and strong domestic investor flows, could sustain India's robust performance despite being in a later-stage business cycle.
- Taiwan/Korea: Returns in these markets largely depend on one sector: technology. Both markets have been in a cyclical upturn since the tech cycle correction in 2022/early 2023. In August, merchandise exports from Taiwan and Korea grew 16.8% y/y and 11.2%, respectively, with three-month averages also trending higher. Strong export activity is expected to continue, fueled by ongoing investments in AI and other advanced technologies, along with the anticipated soft landing in the U.S.
While China's recovery path is likely to be bumpy, the opportunities in EM ex-China remain promising. Recent positive developments in these markets are supported by powerful long-term trends and robust fundamentals that could sustain strong performance. Although it is challenging to find asset classes that can match U.S. growth in terms of performance, select EM ex-China markets present an attractive option for long-term investors focused on growth.
Emerging markets ex-China are contributing more to overall performance
MSCI EM Index, country contribution, total return, USD
Source: Bloomberg, MSCI, J.P. Morgan Asset Management.
Chart is for illustrative purposes only. Past performance is not indicative of future results.
Data are as of September 23, 2024.
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