OPINION: Optimism returns to emerging markets

By Franklin Templeton Emerging Markets Equity Time of article published Nov 19, 2019

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Optimism towards emerging markets has picked up following another interest rate cut by the US Federal Reserve, as well as increased expectations for the signing of “phase one” of the US-China trade deal, says Franklin Templeton Emerging Markets Equity.

“Although both sides appear to be approaching a partial trade agreement, we remain cautious and expect to see some market volatility until a more comprehensive deal is finalised,” the team says.

“Despite the uncertainty, we continue to see investment opportunities across emerging markets. We expect overall corporate earnings to strengthen in 2020, as upturns in some parts of the technology sector offer support.

“We also consider valuations for emerging-market equities to be attractive relative to developed-market equities. Meanwhile, we remain on the lookout for areas where corporate governance could improve and potentially bolster shareholder value.”

Franklin Templeton says emerging-market equities rose in October and outpaced developed-market stocks. The MSCI Emerging Markets Index gained 4.2 percent over the month, compared with a 2.6 percent return in the MSCI World Index, both in dollars.

Franklin Templeton says the most important moves in emerging markets last month were:

* Asian equities finished the month higher. Chinese stocks benefited from a tentative pause in US-China trade disputes as both countries worked toward concluding the first phase of a trade agreement. Technology-heavy indices in Taiwan and South Korea rose on the back of improved expectations for smartphone and memory chip demand. The Bank of Korea lowered its benchmark interest rate to support the domestic economy. Conversely, Thailand's equity market retreated amid a weaker economic outlook and subdued corporate earnings.

* Mixed news dominated Latin American markets. Colombia and Brazil were key gainers in the region. The long-awaited passage of a pension reform bill in Brazil cheered investors, as did the central bank’s decision to cut its key interest rate to a record low. Sentiment in Mexico rose on President Andres Manuel Lopez Obrador’s plans to unveil several major infrastructure projects to boost the economy. However, social unrest in Chile and the defeat of Argentina's business-friendly president in the country's general election checked positive sentiment.

* In the Europe, Middle East and Africa region, Hungarian and Russian equities advanced the most. The Bank of Russia announced a larger-than-expected interest rate cut amid subdued domestic economic growth.

In South Africa, investors focused on the Medium-term Budget Policy Statement, which flagged a wider Budget deficit and higher debt ahead amid an ongoing bailout of Eskom. The outlook for South Africa remains muted and dependent on the government. This year is likely to be tougher than expected with additional pressure from a weaker global backdrop.

At the other end of the spectrum, equities in Turkey and Saudi Arabia fell. Franklin Templeton Emerging Markets Equity


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