"Gustavo Medeiros of Ashmore Group advocates capitalizing on the rebound in emerging markets, according to our site's report"
In the world of economics, emerging markets have been making significant strides, with several factors contributing to their growth.
One of the key reasons countries find themselves stuck in the so-called middle-income trap is a failure to innovate, rather than adverse demographics or other factors. This is a challenge that many emerging economies are now addressing head-on, with a renewed focus on technological advancements and sector development.
Mexico and Vietnam, for instance, are particularly vulnerable to tariffs, given that exports to the US account for 25% of their GDP. However, the election of pro-market presidents in various countries has led to shifts in finance ministries towards policies favoring deregulation, privatization, and market liberalization.
China, a major player in the emerging market landscape, has seen a shift in its policymakers' support for the private sector. In the past year, Chinese policymakers have become more supportive of the private sector, aiming to boost the entire private sector, not just specific industries. This shift is evident in the Chinese government's investment in technology, particularly AI, to accelerate progress in sectors like robotics, electric vehicles, and biotechnology.
The Chinese government's aim is to make their economy more productive and to be at the forefront of technological development in many industries. This focus on technology is also boosting EM growth, with Chinese technology, chipmaking in Taiwan, and AI playing significant roles.
Taiwan Semiconductor Manufacturing Company (TSMC), for instance, has a tight grip on the chip sector due to its ability to produce cutting-edge chips economically and with cutting-edge equipment.
The MSCI EM index, a benchmark for emerging markets, has gained more than 20% in US dollar terms this year. This growth is driven by factors such as rising earnings per share, with the MSCI EM Index expected to rise from $80 to $96 or so this year. Profit growth in the MSCI EM index has also eclipsed that of the MSCI World index over the past four quarters.
EM central banks have been quicker off the mark when it comes to squeezing out inflation by raising interest rates than their developed-market counterparts. This move has helped to stabilize economies and attract investment.
The weaker US dollar is also a source of support for emerging markets, making their exports more competitive on the global market.
India and Indonesia, two significant emerging economies, have gained momentum through structural reform. In India, the pace of growth in capital expenditure has ebbed after surging in the first term of Prime Minister Narendra Modi. However, the banking sector in India is doing well, with private banks delivering strong growth thanks to the adoption of fintech.
Indonesia's president Prabowo has consolidated state-owned companies into a sovereign wealth fund, which has caused some investor uncertainty. However, the country's economy has still shown growth, with earnings per share starting to climb, helped by healthy growth in several countries and buoyant industries such as AI and semiconductors.
Peripheral Europe and central Asia should also benefit from a strong boom in capital expenditure on defence, energy, and infrastructure coming from Europe.
In conclusion, emerging markets are showing strong growth potential, driven by factors such as innovation, supportive policies, and technological advancements. Investors should keep a close eye on these trends as they continue to unfold.
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