Beyond the US: The Rise of Emerging Markets in Global Investing

The global investment landscape is shifting, and investors are no longer solely focused on US stocks. Emerging markets (EM), particularly those in Asia, have emerged as attractive alternatives, driven by robust growth, trade dynamics, and policy reforms. This article explores the factors contributing to the rise of EM and the opportunities they present for investors.

Growth and Potential

Many Asian emerging markets have shown robust economic growth and have significant potential for future development. For instance, China's economy has matured and is going through a difficult patch of reforms, but it remains a significant driver of global growth. Similarly, India's government has ushered in pro-business reforms and a digital identification system that have accelerated growth (Source: Liu Chunsheng, Central University of Finance and Economics).

Trade and Investment

The Belt and Road Initiative (BRI) has significantly increased trade and investment between China and other countries. In 2021, China's total trade with countries along the Belt and Road routes reached 11.6 trillion yuan, up 23.6% year on year (Source: Liu Chunsheng). This has created win-win results and extensive consultation, joint construction, and sharing.

Policy and Reforms

Many Asian emerging markets have implemented policy reforms that have improved the ease of doing business. For example, India's government has made significant strides in improving the ease of doing business, while Indonesia has built more airports, roads, and seaports, opened more industries to foreign investment, and sought to cut red tape by making changes to labor and tax laws (Source: Morgan Stanley Research).

Macroeconomic Stability

Many Asian emerging markets have shown resilience in the face of global economic challenges. For instance, the economic profile of many EM countries is much better than it was a decade ago, with government balance sheets stronger and current account surpluses more than triple the amount recorded for 2019 (Source: Morgan Stanley Research).



Valuation Opportunities

Despite their growth potential, many Asian emerging markets are still relatively undervalued compared to developed markets. For example, MSCI China has returned +18% YTD in 2024, and EM Earnings vs Developed Markets shows that EM earnings growth estimates are best-in-class (Source: FactSet).

Geopolitical Risks and Trade Dynamics

Geopolitical risks and trade dynamics play a significant role in shaping investor decisions. In the coming years, these factors are expected to evolve and continue to influence investment strategies. Investors should monitor these developments and adjust their portfolios accordingly.

In conclusion, the rise of emerging markets, particularly those in Asia, presents a compelling opportunity for investors seeking growth, stability, and undervalued assets. By staying informed about the macroeconomic trends, policy reforms, and geopolitical risks, investors can capitalize on the potential of these markets and build diversified portfolios that cater to the evolving global landscape.