Emerging markets: Macro perspective from our Chief Economist & Macro Strategist
This week's chart covers the following topics:
EMs offer superior growth
EMs offer better growth prospects than DMs, according to this analysis of Purchasing Managers’ Index (PMI) data.
DMs have experienced significant challenges recently, with weakness in the eurozone and the UK and Japan falling into technical recession since the second half of last year.
By contrast, EMs have shown resilience in the face of global headwinds such as higher borrowing costs, worsening trade conditions and inflation.
However, various PMI indicators have exhibited different trends over the last two years. The Services PMI for EMs has consistently outperformed that of DMs. While DM Manufacturing was robust in January 2022, EM Manufacturing has taken the lead since last year.
The Composite PMI for January 2024 also shows how EMs are outperforming DMs.
Inflation generally easing across EMs
Inflationary pressures are easing across EMs following a peak in response to the Ukraine conflict in March 2022.
This is due to a combination of factors including lower commodity prices, the stabilization or strengthening of EM currencies against the US dollar and other major currencies, tighter monetary policy and more efficient supply chains.
A full three-quarters of EM economies posted lower headline Consumer Price Indices in January 2024 compared to the previous month. Major Asian and Latin American EMs are also experiencing inflation below their long-term trends.
Over the last four years, EMs have seen more inflation volatility than DMs for a number of reasons including pandemic-related supply disruptions and higher food prices.
EM equities appear undervalued
Now could be the time to buy EM stocks, with valuations looking attractive based on this analysis of MSCI indices’ relative forward price to earnings (P/E) ratios.
Despite a more favorable growth outlook, EM equities continue to trade at a discount to their DM peers due to perceived risks, offering potential opportunities for investors seeking value.
The current EM forward P/E ratio is at a greater discount relative to DM than the 30-year median, indicating potential underpricing.
Recommended by LinkedIn
However, it is worth noting that forward P/E ratios in EMs vary significantly by country. This is due to a range of factors including individual countries’ growth prospects, monetary policies and political stability.
Macrobond News
Launch of our new data marketplace Macrobond ONE
Macrobond ONE unlocks access to a range of new macroeconomic data providers including Wolters Kluwer - Financial Services Solutions and Turnleaf Analytics . Benefits include intuitive search and a single subscription and invoice.
Leverage Indicio's easy inbuilt nowcasting
Indicio Technologies ' nowcasting tool helps anticipate market trends before official data is released. Enhance your forecast accuracy by integrating latest data points to your main variable now.
“One stop shop” for data, analytics and charting
Francois Trahan, M²SD , Analyst at Trahan Macro Research , shares how Macrobond has enabled him to make better decisions and free up more time for research by eliminating the need for eight data providers and separate packages for analysis and charting.
What would you like to see in Charts of the Week?
Got a suggestion for an innovative visualisation or interesting subject matter? Write to us at chartoftheweek@macrobond.com.
One platform. Unlimited insight.
Macrobond automates the process of turning macroeconomic and financial data into dynamic and sharable intelligence – helping you save time, reduce error, enhance collaboration and stay competitive.
Subscribe now to receive Charts of the Week directly in your inbox: https://lnkd.in/dMjqB29A