Emerging Market (EM) Returns Q4 LTM
Shanghai Exchange (China Mainland) - 11.6% - 24.6%
MSCI EM - Asia - 9.6% - 13.1%
MSCI EM - Latin America 0.9% 3.8%
MSCI EM - Europe & Middle East - 2.7% 4.1%
- China add incremental stimulus to support growth
- Asia underperforms broader Emerging Markets
- LatAm outperforms amidst political upheaval
- Mainland Chinese equity market continues fall
China adds incremental stimulus to support growth, following a sustained period of tightening. China’s economic growth has historically been driven by a huge government spending program on infrastructure. President Xi is trying to wean the country off this reliance on debt-fuelled spending, however, it seems that the tightening of economic conditions required to facilitate this has gone too far. We are now starting to see incremental stimulus measures being reintroduced, such as targeted tax cuts and easing of lending restrictions on banks, that should help to relieve the pressure on the economy and provide the markets with some much-needed confidence.
Asia underperforms broader Emerging Market equities, as technology names weigh on markets. Taiwan and South Korea are both large exporters that have been impacted by concerns over the technology cycle. Apple warned that its earnings growth may slow due to lower demand, creating a negative ripple effect through its long supply chain. Additionally, semi-conductor businesses came under pressure. This was partly due to the warning from Apple but also because demand for high spec processors, required for mining bitcoins, waned following the collapse in bitcoin’s value.
Latin America outperforms amidst political upheaval, following the election of very different Presidents in Mexico and Brazil. Brazil led Latin American equities higher, posting returns in excess of 10% during the period, as markets cheered the inauguration off new President, Jair Bolsonaro. The staunchly conservative and highly controversial President has been dubbed the “Trump of the Tropics” as he shares many views with Donald Trump. Despite the controversy he is deemed market friendly, hence the positive reaction in share prices. Mexico welcomed a new President - Mr Lopez Obrador, however his radical left-wing views scared investors, and equities tumbled along with the Mexican Peso. One of his first major moves was to cancel the building of a multibillion-dollar airport that was already 1/3rd complete after a “people’s consultation” referendum.
Mainland Chinese equity market continued to fall in the fourth quarter, driven by fears surrounding growth and trade. Fears over tariffs, slowing growth, and weakness in technology stocks caused Chinese equities to continue falling during the period. As discussed, policy makers are adding stimulus in an attempt to bring back confidence, but a deal with the US to prevent the imposition of additional tariffs would be very positive for the market.
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