China’s economy has entered a policy-induced downturn, while across other emerging markets, lingering Covid uncertainties, tighter domestic and global monetary conditions and moderating exports imply near-term market volatility. We present our views on the prospects for emerging markets, emerging Asia and China in “EM, Asia, China 2022 market outlook: Building back stability”.
Beijing has tightened its macroeconomic policies and imposed tougher regulatory scrutiny to resolve China’s wealth inequality and asset speculation. The primary focus now is on achieving ‘common prosperity’.
We believe Chinese equities should recover from last year’s style rotation and ongoing regulatory tightening. A more accommodative policy and stronger corporate fundamentals should be positive. We favour sustainable growth companies with solid ESG profiles. Our focus is aligned with China’s main structural trends: Technology & innovation, consumption upgrading and industry consolidation.
There are potential risks including the impact of Covid-19 related uncertainties on consumption; sharp and sudden monetary tightening; and a deeper-than-expected economic slowdown.
The pace at which growth recovers in 2022 will likely differ among other EM economies depending on each country’s Covid tolerance policies, but rising vaccination rates should enable the drivers of growth to broaden from exports to domestic demand.
Positive structural forces across EMs are likely to boost long-term investment opportunities – digitalisation and decarbonisation being key themes to watch.
Stock selection is crucial.
- Selected technology names
- Innovation enablers and disruptors mainly related to the environmental sphere
- Turnaround stories in consumption
- Robust financial companies
- Those companies connected to the Indian and ASEAN digital economies.