UBS On-Air: Market Moves

Top of the Morning: Emerging Markets - Performance drivers and risks

10 min

Emerging market assets have shown significant outperformance recently, potentially ending a decade-long winter, driven by a "great broadening" of performance factors including a healthy global economy, AI-driven productivity gains, and geopolitical shifts. While external factors like a soft dollar and strong commodities are supportive, investors should be mindful of risks such as a reversal in global financial conditions and concentration in tech and commodity sectors.

Summarized by Podsumo

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✨ Key Takeaways

1

Emerging market stocks delivered 35% returns in 2023 (vs S&P 500's 15%) and 18% YTD (vs S&P's 2%), signaling a potential end to a decade of underperformance.
2

Performance is broadening beyond hyper-scalers/chip companies due to a strong global economy, AI-led productivity gains across industries, and geopolitical diversification.
3

External drivers include a soft dollar, easy financial conditions, strong commodity prices, and increased global focus on energy, food, and technological security.
4

Many EM countries demonstrate greater fiscal responsibility and macroeconomic stability, leading to rating upgrades and lower corporate default rates, challenging traditional notions of 'emerging' vs. 'developed' markets.
5

Key risks include a potential reversal of the soft dollar/easy money/strong commodities environment and the concentration of EM indices in technology and commodity sectors.

💬 Notable Quotes

"depending on how you measure it, emerging market assets have underperformed for over a decade, but we think that is likely over."
"history shows that whatever happens outside of the emerging markets can be more important than whatever happens inside the emerging world."
"Nowadays, it is unclear what's an emerging market and what's the developed market if you think about macroeconomic stability or political volatility."