2019 started with great uncertainty for global markets, particularly around central bank policy and the political landscape. While we now have greater visibility on some of those issues, there remain a number of things for investors to worry about. As such, we expect 2020 to be a volatile year. However, in our opinion, the risk/reward trade-off for emerging markets looks favourable.

The global economy has recently decoupled driven by populism and protectionist policies. We believe 2020 could see the global economy resynchronise which will be positive for emerging markets. Our base assumptions for developed markets – which clearly have a strong influence on emerging markets – are as follows:


We are clearly in late-cycle territory in the US, evidenced by the relatively high level of the market. However, we believe 2020 will be a ‘steady as she goes’ year, largely as we do not expect any significant policy changes as we are in an election year. The trade war feels priced in at this stage and therefore any positive developments should be well received by the market. The accommodative approach from the Fed and no major economic imbalances (although the level of credit is a risk) should see the US economy muddle through and deliver growth of around 2%.


The EU is at an earlier stage of its recovery relative to the US. As such, we expect to see some incremental, positive news in terms of growth. However, we expect the recovery to continue to be slow but as least the rate of change is positive. There is, however, one topic where we believe the EU will play a global role – which is relevant on EM investors – and that is the integration of climate policy into modern monetary theory. We believe there is a real likelihood that 2020 will be the year where the ECB  essentially underwrites European climate change policies. This has the potential to be significant in economic and political terms and could be copied by other countries, including those in emerging markets.


Japan appears set to continue its economic trend with a tailwind from China localisation. The effect of the trade war has been for Chinese companies to move their supply chain away from the US, with Japan a beneficiary. Another boost is the 2020 Tokyo Olympics which will help sentiment and tourism.

We see a high probability that EPS growth and aggregated growth in dollar terms will be stronger in emerging than developed markets, helped by valuations starting at a more attractive base.

How this affects emerging markets

This global backdrop – assuming it will broadly play out that way – will be a favourable outcome for emerging markets. Not too hot (Fed, BoJ and ECB will provide liquidity to the global economy) and not too cold (acceptable growth from a demand perspective but enough to create some inflation). 

We see a high probability that EPS growth and aggregated growth in dollar terms will be stronger in emerging than developed markets, helped by valuations starting at a more attractive base. 

At a country level, many emerging economies are in a healthy position.

China: We see China making a soft landing. We expect the impact on sentiment from the trade war will be shaken off and the continued development trends, particularly in the service economy, will set China up for further growth. President Xi and his leadership will be keen to ensure China is in a healthy state for the 100-year anniversary of the Communist Party of China in 2021. This, along with President Trump’s own electoral plan, provides both parties with an incentive to agree a phase one trade deal. The US and China will clash again, in our opinion, especially if Trump is re-elected. This is almost akin to a Cold Technology War between these countries and will set a lot of the geopolitical agenda for the next decade. For us, the key investment implication is to keep focusing on the development of the service economy in China and its emerging technology companies.  

India: India remains a key focus for us. We saw a positive contribution to performance in the Fund in 2019 and our expectation for 2020 is more of the same. Economic growth in India has been in a down-cycle following Prime Minister Narendra Modi’s reforms and a mini-credit crunch. However, we believe we are getting very close to the bottom of this cycle and that 2020 will see the economy improve. India is not a cheap market if you look at the headline valuation numbers, but beyond the widely known and widely held consumer stocks, which are expensive, we see attractive opportunities in the mid and small caps.

Russia: It is very hard to say anything bad about Russia, except that it is Russia! There will always be a high political risk premium, which to some degree is justified. However, the market is now very cheap, even for high quality companies. It has a huge current account surplus; one of the largest FX reserves; maybe the most conservative and well-managed central bank in the world; and it looks like the economy will grow in 2020, helped by fiscal stimulus ahead of an election cycle. Currently, we find some of the Russian internet companies very attractive. They have high growth and high returns along with good corporate governance. Valuations are cheap relative to fundamentals and their global peers. 

Brazil: Within EMs, Brazil was one of the big winners in 2019, with signs of some green shoots in the economy following a period of recession. A major hurdle to structural reforms which has been overcome is the approval of their pension reforms. This has created hope for more vital reforms to follow. We have a positive view for Brazil’s economic growth outlook in 2020, however selectivity is crucial as a lot of the positivity is in the price.

Korea: South Korea seems to be a large underweight for many investors and as a result, it is getting very cheap. We believe the big changes will be the technology cycle turning and this will give a large kicker to the earnings growth in the Korean market.

Taiwan: The outlook is similar to South Korea in that it is very leveraged to the technology cycle which we have a very positive view on.

Indonesia: Indonesia had a disappointing year in 2019. Even though President Jokowi was re-elected, he has struggled to get a real reform agenda going. We are hopeful that 2020 will be the year where Indonesia starts to deliver on its growth potential.

Vietnam: Vietnam is, of course, not an official emerging market as it is still classified as a frontier market. We have decided to make a small comment given the relatively large exposure we have in the Fund. We continue to see Vietnam as one of the more interesting investment destinations for 2020 and beyond. The underlying structural growth in the economy is strong and we believe it will keep improving. The wave of foreign investment into Vietnam is only just starting and we see a strong urbanization trend that keeps adding to the service component of the economy. We are finding many interesting investment opportunities there at very attractive valuations.

2019 proved to be a positive year for the Fund, both in terms of absolute performance and relative to its benchmark. We remain optimistic that 2020 will be the same. We were also delighted to have won award in the Emerging Markets Equity Category at the Fund Forum Global ESG & Impact Awards in recognition of our ESG credentials. Sustainability remains a key pillar of our investment process.

To view the latest portfolio breakdown and performance for the Emerging Market Stars Fund, visit our fund page.