What themes do you anticipate will most influence emerging market equities in 2024?

The key themes for emerging markets in 2024 are the direction of the Fed – and that has implications for the strength of the dollar. The political calendar – we have a lot of elections, not only in emerging markets like India, but also in the United States; that has enormous implications for U.S. policies toward emerging markets, like China. China macro: Can the Chinese policymakers stabilize and deal with the excesses of the past economic model? And lastly, geopolitics. Clearly, 2023 was a story of more and more complexity on geopolitics. Hopefully, 2024 will be less noisy, but perhaps that’s some kind of consideration that we have to think about for 2024.

Where do you expect the most compelling opportunities emerging markets?

I think there are two key areas that I would look to for attractive investment opportunities. Number one is India at the right valuations; it is the one that can credibly grow, [with] high-single-digit GDP growth for two decades. It has the right ecosystem for innovation. It has the right political structure, transparency, the right demographics, the right management teams that understand the role of capital markets.

The other is innovation. Innovation in EM is growing. We have more and more stories in emerging markets that are looking to solve EM-specific issues, leveraging technology. There is biopharma. There’s most of the global supply chain, and solar and wind, and EV batteries.

What is the single most underappreciated risk for emerging market equities?

The key risk that I would highlight for 2024 in emerging markets is policy error. It could be policy error in terms of mismanaging the trade relationship and political relationship between China and the United States. It could be the mismanagement of stabilizing the growth in China. It could be maybe the Middle East spiralling out of control.

Is there particular data that you believe merits close monitoring?

In terms of charts or data that we should monitor in emerging markets, the data in China is manufactured; and so, you have to be a little bit more creative about what kind of data series you look at. I would certainly look at U.S. core inflation because that will have implications about the Fed policy, and that’s going to have implications for the cost of capital for emerging markets. Commodities, to get a sense of underlying demand for global growth.

And lastly, perhaps North Asian exports. That gives you a temperature check on developed market and demand and gives you also a sense of how some of the North Asian countries are faring in the more difficult 2024 environment. And it also gives you a snapshot into what’s going on in China.

What’s the most important takeaway for investors regarding emerging market equities?

Why buy emerging markets? Let me reframe the question: Why buy a narrow U.S. equity market trading at expensive valuations, when you could buy emerging markets that’s not as well understood, not as well invested, not as expensive, with a lot of these great attractive companies?

There’s no doubt we need to deal with some cyclical headwinds in terms of what the Fed is going to do and the U.S. political cycle and so forth. But in terms of where we’re going in terms of policy, EM is easing. Economic growth is improving. And that can’t be said in developed markets. And so, I would say that the cyclical case for emerging markets is very exciting to me.