Investment Adventures in Emerging Markets


Emerging Market Insights: Easier financial conditions in emerging markets

Interest-rate cuts and shifting trade patterns bode well for emerging markets, according to Franklin Templeton Emerging Markets Equity. Get the team’s latest outlook.

Three things we are thinking about today

  1. Earnings: Consensus forecasts call for 18% earnings growth for the MSCI Emerging Markets Index in 2024, which compares to a forecast 9% contraction in 2023.1 Expectations for next year have held steady since in recent months. China, Taiwan and Mexico have driven forecasts lower for this year. Looking ahead, a recovery in South Korea, Taiwan and China is expected to drive the rebound in 2024, with the technology sector the main driver.
  2. China’s property measures target demand: Tier-1 cities in China are lowering mortgage downpayments for second homes to 40% from 70-80%.2 Shenzhen is the second city after Guangzhou to implement the change. This follows similar cuts to downpayments for primary homes to 30%-35% earlier this year.3 Policies on home value bands, which also impact downpayments, have been raised in tier-1 cities. The changes are designed to increase housing affordability and demand.
  3. US dollar weakness: A faster-than-expected drop in inflation and dovish comments on interest rates by US Federal Reserve Governor Christopher Waller pushed bond yields and the dollar lower in November. The greenback has weakened 3.4% since its October high.4 A weaker US dollar creates easier financial conditions in emerging markets as central banks do not need to use interest rates as a tool to support the local currency. A declining greenback also reduces the cost of foreign currency debt in local currency terms. This eases the financing burden on companies in emerging markets (EMs).


The Franklin Templeton Emerging Markets Equity team visited China in November to assess the situation on the ground. We conducted site visits and had interviews with management across selected firms. The majority of the team members emerged from this trip with a positive view following the visit.

We had some pleasant surprises. The tightening of US restrictions in recent times has hogged headlines, but during our visit, we realized that companies with exposure outside of China are somewhat insulated from these restrictions:

  • A medical device manufacturer revealed that it was easy to switch to a US Food and Drug Administration-approved plant outside of China. This was in response to its US-based clients’ concerns of sourcing from China.
  • Not all technology firms in China will be affected by the CHIPS Act.5 Examples include firms in the electric vehicle, optical scanning and consumer electronics segments. These companies only require standard chips, and these chips can be sourced locally as China already has expertise in them.

We also witnessed the speed of technology advancement in China. For instance, a food delivery platform uses drones to deliver food in dense urban neighborhoods. In developed markets (DMs), progress in drone delivery has been limited at best.

Elsewhere, interest-rate cuts and shifting trade patterns bode well for emerging markets. Rate cuts reduce financing costs and are thus positive for businesses. This could boost earnings and spur investments, which should strengthen the global economy. However, while net interest margins for banks could face some pressure, credit growth may follow. The increasingly popular China+1 strategy6 also stands to benefit India, Mexico and several other Association of Southeast Asian Nations (ASEAN) economies. This strategy also helps to reduce supply chain risks and allows other economies to grow.

What is important to us is the bottom-up view of the investment landscape in EMs. There are still numerous companies with long-term earnings power in the investment universe. Some examples of these companies are discussed above. Our on-the-ground teams are equipped with access to company management, which is crucial in our assessment.

Market review – November 2023

EM equities rose during the month but lagged their DM counterparts. Markets reacted well to the US Federal Reserve’s move to hold interest rates steady. The latest inflation reading in the United States was better-than-expected, showing signs of softening. This aided the performance of equities. For the month, the MSCI Emerging Markets Index returned 8.02% while the MSCI World Index advanced by 9.43%.7

The emerging Asia region saw a turnaround in November, recouping the losses of the previous month. A tech rally on Wall Street spilled over to South Korea and Taiwan, powering the gains of chip stocks in these two countries. South Korean equities rallied after the implementation of a short-selling ban. Stocks impacted by prior short selling reaped the benefits of this reversal.

Falling oil prices helped Indian equities advance. A favorable court decision in response to a short-seller’s report earlier in the year drove market returns—the market interpreted this as a lack of evidence in allegations against the Adani group (not portfolio holdings).

Equities in China also performed well. Its stimulus program and a dampening of US-China tensions helped market sentiment. Chinese property stocks rebounded from policy support. However, Alibaba’s share price fell and limited gains. Disappointing second-quarter earnings and the suspension of the initial public offering of its cloud and grocery arms weighed on its share price. News that co-founder Jack Ma’s initial plans to cut its stake in the company also pushed the stock lower.

Equity markets in the emerging Europe, Middle East and Africa region also rose. Middle-Eastern equities benefited from a brief recovery in oil prices later into the month on the back of possible supply cuts. Other countries saw a divergence in monetary policy. While Egypt’s central bank kept interest rates steady, Hungary’s central bank cut rates and Turkey’s opted to hike rates.

Equities in Latin America performed well. Brazil’s central bank cut interest rates for the third consecutive time. Shares of its state-run oil company and its largest utility firm both rose—the former as it raised its production output projections and announced dividends, and the latter on a better-than-expected third-quarter net profit. Mexico’s market benefited from further easing in inflation. The government also passed a bill to boost trading in its national stock exchanges.


All investments involve risks, including possible loss of principal.

Equity securities are subject to price fluctuation and possible loss of principal.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.

The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.

There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.

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1. Source: Bloomberg. As of November 22, 2023. There is no assurance that any estimate, forecast or projection will be realized.

2. Source: E-House Enterprise Group.

3. Ibid.

4. Source: Bloomberg. As of November 30, 2023.

5. The CHIPS Act prohibits funding recipients from expanding semiconductor manufacturing in China and countries defined by US law as posing a national security threat to the United States.

6. The China+1 Strategy refers to the long-term structural trend where global manufacturers establish an additional overseas production base in China plus one other country.

7. The MSCI All Country World Index is a free float-adjusted, market capitalization-weighted index designed to measure the equity market performance of global developed and emerging markets. The MSCI Emerging Markets Index is a free float-adjusted, market capitalization-weighted index designed to measure the equity market performance of global emerging markets. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.

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