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07 Feb 24 Insight Global Equities Ox Capital Management

2024 Outlook: An inflection point for Emerging Markets

Welcome to 2024, the Year of the Dragon in the Chinese Zodiac. We believe the fundamentals are in place for emerging markets (EM) to outperform developed economies (DM) in the coming year. Many EM central banks, with a few exceptions, were first to react to combat inflation by shifting monetary policy and tighten financial conditions. As a result, many EMs were the first economies to loosen monetary policies in 2023 which will support growth in 2024. In contrast, growth outlooks for developed economies are expected to slow. US rates have peaked. We believe a slowdown in growth for the US is going to lead to interest rate cuts. Our proprietary quant model (the MOAT) is pointing to a mixed environment for many developed markets into 2024, versus an improving outlook for many EM countries. Moreover, emerging markets are at  a multi-decade low in relative price to earnings and price to book valuations compared to developed markets, and earnings growth is likely to rebound. In this report, we outline our key expectations and themes across emerging markets in 2024 and how we are positioned. 

Infection point on the horizon for Emerging Economies

Historically, the year of the dragon has been a momentous year for Asian equities performance.  We are looking at an attractive entry point with forward price to earnings multiples at depressed levels for quality companies with sustainable long-term growth and a backdrop supportive of outperformance. Moreover, many EM economies are undergoing continued economic development and political reforms. We believe the fundamentals are in place for emerging markets to outperform developed economies in the coming year as we enter a positive backdrop in 2024. Inflation is trending lower in many EMs allowing for central banks to cut rates, such as in Vietnam cutting interest rates multiple times in 2023. As pictured above, the Dragon (China) is leading the way while pulling a cart of animals representing emerging markets in our portfolio, such as the Water Buffalo (Vietnam), Komodo Dragon (Indonesia), Panda (Hong Kong), Eagle (Philippines), and Tiger (India). We believe this graphic illustrates expectations for EMs in our portfolio for exciting money-making opportunities across EMs now as headwinds are turning into tailwinds for many markets! We remain optimistic for companies and outlooks in 2024 as the dots are connecting for outperformance for emerging markets.