Brighter prospects for emerging markets seen in ’22

After ending another challenging year amid the prolonged COVID-19 pandemic, 2022 prospects seem brighter for emerging markets, with digitalization and decarbonization rising as the key themes to watch for.

This is according to Franklin Templeton Emerging Markets Equity chief investment officer Manraj Sekhon, who said in a Dec. 27 commentary that emerging market (EM) stock market valuations appeared to have priced in much caution and were starting to provide attractive long-term value.

Equity valuations in China, Sekhon said, appeared to be “near a floor” and should be “well-supported” following significant negative news flow in 2021. While near-term headwinds from regulatory uncertainty and its “zero-COVID-19” stance could extend into 2022, Chinese policymakers stand ready to stabilize economic growth, if needed, Sekhon said.

Innovation

“Across EMs, positive structural forces remain apparent and are likely to foster fresh investment opportunities,” he said. “Fiscal and current accounts are also in better shape than before, potentially ruling out a repeat of the severe market stresses that hit EMs in previous down cycles.”

Digitalization is seen as a key theme, he said, noting that India’s thriving internet economy had attracted capital seeking new areas of growth, especially in light of regulatory flux in China.

“E-payment, food delivery and other disruptive business models have taken off, prompting even traditional businesses to embrace innovation to counter the competition. In China, industrial digitalization has gained pace as the economy eyes progress up the value chain,” Sekhon said.

Globally, he said the continued semiconductor shortage had underscored the huge demand for chips coming from technology advancements, as he expected strong earnings to come for some of the world’s largest semiconductor companies in markets such as Taiwan and South Korea.

“Decarbonization is another trend to watch. Major EMs’ pledges to achieve carbon neutrality is likely to intensify electrification and renewable energy efforts, creating multiyear support for relevant industries. We have seen growth for South Korean electric vehicle battery makers and Chinese solar energy companies accelerate sharply, lifting them to world-leading industry positions in the process,” he said.

The investment expert noted that 2021 had been a challenging year for EMs, with mixed vaccination progress across countries contributing to false starts in exiting the pandemic. As such, he noted that economic reopening in EMs and reopening trades in their stock markets subsequently lagged those in developed markets. INQ