With all the recent policy and economic volatility coming out of the US since Trump's election, below is a commentary from James Syme, Senior Fund Manager of the JOHCM Global Emerging Markets Opportunities Fund.
There is an old market trader’s adage: “Buy on the rumour, sell on the news.” That mindset seems relevant for the current moment. Nearly four months after the presidential election, the country is navigating dramatic shifts to its economic and foreign policy. These changes have major implications for global emerging markets, which we believe are reflected in new trends we see unfolding over the horizon.
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At the headline level, MSCI EM Index returned -1.6% from 5 November 2024 to 5 March 2025, underperforming global equities. These results, however, mask two major trends impacting emerging market equities performance — which market sectors are winning and losing — and more recently, year-to-date trends.
Mexico and China continue to be the two emerging markets most exposed to the new policy environment in Washington, particularly regarding trade tariffs, and both have outperformed, with MSCI Mexico returning +3.1% and MSCI China +9.5% since the election. MSCI Brazil is down, having returned -8.5% with increased concerns about interest rate hikes there. But many other traditionally higher risk markets, such as Turkey and smaller Latin American markets, are up.
With many markets struggling last year now doing well, which markets have been losing? Notably, MSCI India has returned -12.2%, despite having limited trade exposure to the US and a good political relationship with the new administration. There’s been a growing sense that the recent economic boom in India is losing steam and that high valuations may not be sustainable, leading to increased caution amongst Indian investors.
Similarly, the technology growth stories that dominated headlines last year are also weakening. MSCI Taiwan has returned -4.2% and MSCI Korea -7.0%. Following a long period of outperformance, MSCI Information Technology has underperformed, returning -3.0%. MSCI Malaysia (-4.8%) and MSCI Thailand (-18.3%) are also exposed to technology exports and underperforming.
Year-to-date trends, although short, may warrant an even more exciting story. Every Latin American market has had a positive return in US Dollars, with MSCI Mexico +8.7% and MSCI Brazil +7.6%, while MSCI South Africa (an overweight in our portfolio) has returned +9.6%. MSCI China has returned +16.4%, and MSCI EM as a whole is +4.0%.
Improved growth prospects in China and the historically riskier parts of the asset class are attracting investor interest as uncertainty grows about where the pain of tariffs will ultimately be felt. These positive returns stand in contrast to a negative year-to-date return from MSCI US, with MSCI US Growth returning -3.9%.
These are recent trends and, so far, short term. Which brings us to another saying: “One swallow doesn’t make a summer.” While the global economic and political environment remains volatile, if we were asked what an EM bull market looks like, we would say it looks like this.
