Why the outlook for emerging markets is improving after years of underperformance

Emerging markets have underperformed over the past decade. Alex Rankine explains what the outlook is.

Brazil
High commodity prices mean a better outlook for Brazil.
(Image credit: © Getty)

It has been a miserable decade for emerging market (EM) investors, says David Thorpe in FT Adviser. EM shares have returned just a third as much as the global average. And recent performance has not been encouraging: the combined market capitalisation of the 24-country MSCI Emerging Markets index has fallen $4trn since early 2021, say Srinivasan Sivabalan and Karl Lester Yap on Bloomberg. Rising US interest rates and slowing global growth are weighing heavily on the asset class.

EMs don’t look expensive now, but the US dollar is the sector’s “puppet master”, James Sullivan of Tyndall Investment Management tells FT Adviser. “Ascertaining the true value of a market that is intrinsically linked to a foreign currency is fraught with jeopardy.” A strong dollar makes it more expensive for businesses that borrow in dollars but earn in local currency to service their debts. There are plenty of those in emerging markets. “US dollar credit to non-banks outside the US stands at $12.6trn, which represents 14.8% of world GDP, up from less than 10% in 2007.”

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Markets editor

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019. 

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere. 

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful. 

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.