EMERGING MARKETS Revealed: the best and worst performing emerging markets in 2022

Turkish stocks have soared, Indian shares hit new record highs but China has struggled

The strong dollar, surging inflation and China’s Covid woes have presented a big challenge for stocks in developing countries in 2022 but some emerging markets have performed well.

Data from Refinitiv shows 24 MSCI emerging markets indices have generated a return of 2.1% in 2022 on a non-weighted average basis.

The headline MSCI Emerging Markets index is down more than 20% though thanks to the extremely weak performance of the Chinese market, which has a dominant weighting.

Investors will be hoping China is now at an inflection point as it readies for a relaxation of Covid rules next spring.

The standout performer is Turkey which has bounced back strongly this year. Domestic investors have been piling into Turkish stocks as a way of beating inflation and the country’s central bank has bucked the global trend by reducing interest rates despite surging prices. Valuations were also cheap after a long period of underperformance.

Of the larger emerging markets, India stands out. Indian shares reached all-time highs in early December, supported by a resilient economy, financial reforms and an administration which is perceived as being increasingly pro-business.

Apart from China, other markets which struggled included those exposed to geopolitical risks with tensions over Taiwan, and Beijing’s claims to it, mounting. Hungary and Poland suffered thanks to their close proximity to the Ukrainian conflict and acute exposure to surging energy prices.

This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit here

Three things the Franklin Templeton Emerging Markets Equity team are thinking about today

1.China reaches an inflection point: China’s inflection point began with the easing of access to credit in the property sector in October 2022. The reset in US China relations at the G20 meeting in Bali between China’s president Xi Jinping and US president Joe Biden in November followed. The final piece of the jigsaw was the dismantling of China’s zeroCovid policies, which started in November and accelerated in December. Changes in selected cities include home quarantine for positive cases, removal of the requirement for polymerase chain reaction (PCR) test results to travel on public transport, and a reduction in daily testing for school children.

2. Peaking US inflation data: The US median Personal Consumption Expenditure Price Index (PCE), a key measure of inflation, is expected to decline from 6.3% in 2022 to 3.5% in 2023. The high base effect is seen driving the decline, along with an easing of supply chain bottlenecks and the negative effect on growth from higher interest rates. While a slowdown is anticipated, there has been uncertainty over the timing of the peak in inflation. Recent data signal the peak may now be behind us, enabling investors to focus on slower inflation in 2023 and a possible change in the US Federal Reserve’s pace of rate hikes. 3. Earnings recovery in 2023: The prospect for a recovery in earnings growth in 2023 is likely to act as a catalyst for markets, as the slowdown in 2022 earnings has been a concern. In emerging markets (EMs), earnings growth is also forecast to recover; China is likely to be a leader with 15% estimated growth. A pickup in earnings revisions in EMs would act as a confirmation of better times ahead for earnings and, in turn, equity markets.

Chetan Sehgal Singapore

Edinburgh TEMIT is the UK’s largest and oldest emerging markets investment trust seeking long-term capital appreciation.

Asia is home to some of the world’s largest, most competitive and exciting companies. IAT’s unconstrained approach allows fund managers Ian Hargreaves and Fiona Yang the flexibility to pick the best ideas from across this vast geographic region and react to changing market conditions.

The team’s approach combines fundamental analysis and a focus on valuation to identify undervalued Asian franchises, form different views from the market and patiently allow their investment theses to play out.

Capital at risk The Invesco Asia Trust plc invests in emerging and developing markets, where difficulties in relation to market liquidity, dealing, settlement and custody problems could arise.

The investment trust uses derivatives for efficient portfolio management which may result in increased volatility in the NAV. Find out more here or speak to your financial adviser

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