Despite the potential threats to emerging markets prospects from policy decisions from the incoming Trump presidency, Chetan Sehgal, Portfolio Manager, Templeton Emerging Markets Investment Trust (TEMIT), remains positive on the sector.
While near-term factors weigh on the performance of EM equities, we believe that there are still positive, long-term drivers that should extend into 2025.
The emergence of artificial intelligence (AI) has been a big catalyst for technology companies in South Korea and Taiwan. This has spurred an increase in the demand for the products of many of these countries’ AI-related companies. For companies in the semiconductor supply chain in these two countries, other longer-term growth drivers support the demand for semiconductors. These drivers include energy transition, electrification and technological advancement. We remain optimistic about the semiconductor industry, which remains a key overweight in our portfolio.
The results of the US elections have dampened investor sentiment in EM equities. However, in our view, policies that will eventually emanate from the incoming US administration could be less aggressive than many investors initially feared.
China continues to keep up with policy support to boost consumer sentiment and equity markets in the country. While this may be interpreted positively, we balance this view with China’s structural challenges such as supply-chain disruptions and an ageing population. India witnessed a slight weakening in its consumption growth in recent months and saw a slight drop in its equity market. We remain underweight in both China and India.
Longer-term bond yields have increased. This could extend into 2025, which poses a near-term headwind for EM equities. This adds onto uncertainties resulting from geopolitical tensions in EMs. We continue to maintain our underweight stance in the emerging Middle East region.
What is important to us is the bottom-up view of the EM investment landscape. In our analysis, there are still numerous companies with long-term earnings power in our investment universe. Our on-the-ground teams are equipped with access to company management, which is crucial in our assessment.
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