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By Nathan Chaudoin - August 17, 2017
The election of Donald Trump as the 45th president of the United States last November initially worried emerging markets (EM) investors. The candidate’s campaign rhetoric promised trade renegotiation and other protectionist moves that would likely pressure companies across the region. He also outlined a reflationary agenda expected to result in a stronger dollar and higher interest rates in the U.S., both of which would be headwinds for EM economies. Given this, investors were convinced the new administration’s policy initiatives signaled tough times ahead for EM.
Two-plus quarters have gone by since the inauguration, and emerging markets are alive and well. In fact, EM have outpaced their developed markets counterparts so far this year. The new administration has thus far had limited success in implementing its agenda, which has relieved investors’ concerns about trade wars and currency weakness for now.
The ongoing economic recovery in developed markets is the bigger story. As Europe and the U.S. continue to improve, EM have strengthened, beneficiaries of increased demand and improvement in export activity, as well as stronger local demand from emerging markets consumers and a growing middle class.
There are ongoing reasons for optimism. Stabilization in China is a positive. Improving domestic demand and government support of public infrastructure projects bode well for EM companies. EM consumers are seeking a higher quality of life, demanding education, e-commerce, environmental services, banking and investing products, and access to health care.
It is important to note that whenever one group of stocks is pressured regardless of individual company fundamentals, this could represent an investment opportunity. A bottom-up, fundamental research-driven approach can help identify companies positioned to perform well — despite any negative headlines or general assumptions about the asset class as a whole.
Concerns about the Trump agenda will not be resolved right away. While delays have given emerging markets some breathing room, this underscores the importance of picking stocks on a company-by-company basis. We believe the long-term secular growth story in emerging markets remains intact, and EM equities should continue to provide attractive opportunities, despite transient macroeconomic headwinds.
Learn more about our growth philosophy when investing in emerging markets.
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Dividends are at risk in the aftermath of COVID-19 shutdowns, but we’re still finding companies that can withstand the recession and grow their dividends in the future.
Focusing on quality has historically led us to companies with strong financial and ESG characteristics.
We believe active managers are well positioned to exploit inherent inefficiencies in emerging markets.
Client Portfolio Manager Nathan Chaudoin provides a unique look beyond the headlines at emerging markets' still-solid fundamentals.
The recent negative equity market response—despite limited economic exposures—reflects how markets are trying to price in the risk of escalated US protectionism, rather than any specific tariff. We believe the steel and aluminum tariffs will have a limited impact on emerging markets.
March 09, 2018
International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.