Opportunity: Emerging Markets Shares

Emerging markets are once again attracting investor attention, helped by improving signs in China and a weaker US dollar — two factors that often support stronger performance in these regions.

In recent weeks, China has stepped up efforts to support its economy. The central bank has lowered key lending requirements to make it easier for banks and households to borrow, while the government has announced new spending to help meet its growth target for the year. These moves have boosted confidence in Chinese share markets, which have rebounded strongly.

Although China’s property market remains under pressure and consumer spending is still cautious, parts of the economy, such as manufacturing and exports, are showing resilience. Importantly, China’s share market has changed over time, with technology and service-based companies now playing a bigger role. Many of these “new economy” businesses are seeing profits grow, helped by ongoing government support.

That said, investors continue to keep an eye on longer-term challenges such as an ageing population and the potential for greater policy involvement in certain sectors. While these risks may temper the pace of China’s growth over time, they are balanced by continued efforts to diversify the economy and drive innovation in high-value industries.

Outside China, several other emerging markets are also in good shape. Taiwan and South Korea are benefiting from strong global demand for technology products, while India continues to grow steadily as it increases government spending and investment.

Looking more broadly, the overall backdrop for emerging markets is encouraging. A softer US dollar makes it cheaper for these countries to trade and repay debt, while the prospect of lower global interest rates is also positive. Meanwhile, share prices across emerging markets remain attractively valued compared to those in developed countries, providing room for potential gains if investor sentiment continues to improve.

Over the longer term, the story remains compelling. Emerging markets are home to most of the world’s population growth and a rapidly expanding middle class. As incomes rise and cities grow, local spending power increases, supporting businesses across a wide range of industries. Many emerging market companies are now leaders in fields such as technology, digital payments, and clean energy — areas that are helping to shape the global economy of the future.

While there are still challenges ahead, particularly in China’s property sector, we believe the outlook for emerging markets is improving. To take advantage of this opportunity, we have increased our exposure to emerging market shares within the Partners Medium and Long Term Portfolios.