David Dali, Head of Portfolio Strategy, provides his 12-month outlook for global equity markets.
Macro Tailwinds for Emerging Markets
While investment sentiment has softened since January, I remain positive toward emerging markets and Japan given their relatively attractive valuations and the prospect of a more favorable macro climate ahead.
- Emerging markets (EM) have endured negative sentiment over China and heightened fears of a policy-induced global slowdown. Yet going forward I support an overweight position due to the positive trajectory of EM economies versus developed market (DM) peers, valuations that assume elevated risk premiums, relatively robust earnings expectations, and peaking in U.S. dollar strength.
- Regionally, I have an underweight stance in Latin America given the relative outperformance at the start of 2023. While Brazil and Mexico have maintained extraordinarily tight monetary policies which should support their currencies, I expect the recent outperformance of Mexico’s equity markets to wane and Brazil’s fiscal discipline to remain a formidable challenge.
- I remain more positive toward Asia ex Japan. South Korea and Taiwan are susceptible to swings in the world economy; however, barring a pronounced global downturn both should experience steady demand for their advanced technology and manufactured goods and services.