He says the major question for investors right now is whether valuations already reflect the boost to arrive as a result of lower interest rates.
Shaniel Ramjee, co-head of multi-asset at Pictet Asset Management, says: “The start of the easing cycle in the US generally precedes a period of relief for emerging markets as emerging market central banks are able to ease policy with less risk of destabilising their currencies.
"In this case, we know that the length and degree of tightness of emerging market central banks has been meaningful, and longer in many cases than even the US has had to endure.
"At the same time growth has largely held up well, outside of China. Therefore rates relief with a backdrop of stable inflation and still decent growth should provide a favourable economic backdrop of these economies.
"This should spur the consumer, domestic business, and capex. Even more so if growth differential remains positive in favour of emerging markets while the US is still avoiding recession – the prospect for emerging markets outperformance grows.”
His view is that emerging market assets have not benefited from expectations of rate rises due to the travails of the Chinese economy, with China comprising a very large part of the index.
But he says the very strong performance of Indian equities in recent years means that market is becoming a larger part of the index, dampening the impact that underperformance in China can have on the wider market.
Chinese walls
Following a run of exceedingly poor economic data, policymakers in China recently announced a stimulus package aimed at growing the economy, sparking a rise in most emerging equity markets and in US equities.
The economists at TS Lombard say the stimulus will have a limited impact on the growth outlook for the Chinese economy as, in their view, the multiplier effect (that is, the extra growth generated by today’s spending) will be low, but they are optimistic about the potential for Chinese equities to benefit from the improved sentiment.
Jason Day, who runs the model portfolio service at Abrdn, says the travails of the country’s property sector and the amplified levels of geopolitical risk make China a tough place to invest, regardless of recent stimulus.
Guy Miller, head of macroeconomics at Zurich, describes the recent fiscal stimulus introduced by the Chinese government as a possible “game changer”.
He says: “Investors probably reached peak selling of Chinese assets earlier this year as they were let down by previous stimulus efforts.
