Sharing his latest thoughts with us on risks and opportunities that lie ahead for investors in Emerging Markets, Chetan Sehgal (pictured), Portfolio Manager, Templeton Emerging Markets Investment Trust (TEMIT) comments:
“The recent commencement of the US Federal Reserve’s interest-rate cutting cycle is broadly expected to serve as a favourable tailwind for EM equities. Indeed, several Asian economies have begun to experience a strengthening of their currencies, which often reflects improved economic conditions and increased investor interest. Additionally, some EM central banks have already started to implement their own rate cuts, further contributing to a more supportive environment for bottom-up investors.
“In Brazil, the central bank has implemented interest-rate hikes in response to its concerns about rising inflation. Real interest rates in the country remain elevated, which may delay the pace of recovery by several quarters. However, we anticipate that Brazil’s central bank will eventually align with the global trend of easing rates.
“While AI-related tailwinds continue to elevate earnings expectations for semiconductor companies in Taiwan and South Korea, investor sentiment regarding AI seems to ebb and fall. Regardless, we remain optimistic about the semiconductor industry—besides AI, there are other longer-term growth drivers for semiconductors. These drivers include energy transition, electrification and technological advancement. These factors guide our optimism on the semiconductor industry, which remains a key overweight.
“The increase in policy support in China over the past couple of months has not been able to sustain the late-September rally. While this short-term rally has spurred investment flows into Chinese equities, we believe structural challenges in China remain. The valuations of Indian equities remain a concern to us, and we are therefore underweight in both Chinese and Indian equities.
“Donald Trump is the US president elect. This sets the stage for an uncertain and more unpredictable outlook for economies and markets outside the US. We have limited exposure to Chinese companies in the EV and solar supply chains. We do not factor in US demand in our assessment of their intrinsic worth. For South Korean battery companies, there is a risk that benefits under the Inflation Reduction Act could be curtailed. We are cognisant of the risk and is one of the considerations in our assessment of the companies.”
