“EMs are generally in an enviable position relative to developed markets,” she notes.
Her view is that monetary policy generally operates with a lag of between 12 and 18 months, so the rate cuts that many EM economies enacted in 2023 will, in her view, begin to drive growth in 2024.
The China conundrum
Miller says the EM equity index is dominated by Chinese stocks, so to an extent its the fate of that economy which will impact returns in the coming year.
He describes himself as “constructive” on the outlook for the Chinese economy, believing that some of the economic data is now showing signs of improvement.
Miller says: “The narrative has almost grown that China is uninvestible, and the truth is, you do need a risk premium to invest there. But my view is that an investor is getting that risk premium, especially as I think policymakers in China will stimulate the economy in 2024, which should help growth.”
JPMorgan’s Arora says some of the reason for the bumps in the road experienced by the Chinese economy in recent years have been a function of it moving to a more “sustainable” growth model rather than be reliant on exporting goods.
He notes that Chinese consumers will have a better year in 2024 than they did in 2023, which he says will be positive for growth in that country.
As China has sought to move away from being the lowest cost manufacturer and towards a model with consumption more central to its approach, other Asian economies have taken up the baton as manufacturers.
Many of those economies are in the Asia Pacific region, and Miller says economic data appears to indicate that the downturn in demand for manufactured goods, which occurred globally as economies exited pandemic-era restrictions, appears to be easing and he anticipates the result being that those economies perform relatively well in 2024.
He adds: “I think chip prices have stabilised and we are at the start of a new technology cycle, which should also help those Asian countries.
Arora says: “From a North Asia perspective, the region’s tech-heavy focus looks increasingly well positioned, as the sector positions itself for the next decade’s big trends with, for example, structural demand for artificial intelligence, cloud adoption and electric vehicles.”
One of the Asian economies that has been displacing China as a manufacturing hub is Vietnam, but Ngo Thanh Thao, deputy portfolio manager of Vietnam Enterprise Investments, sees more value in investing in the domestic economy, in areas such as urbanisation and the growth of middle class consumers as a consequence of the manufacturing boom.
