The US-China trade conflict has remained at the forefront of investor concerns in recent months, with both governments imposing tariffs on each other’s goods. While continued tensions are likely to result in continued market volatility, Franklin Templeton Emerging Markets Equity nonetheless finds reasons to be positive about emerging markets, with a more dovish global central bank backdrop offering support.
Three Things We’re Thinking About Today
- Finance Minister Nirmala Sitharaman announced a meaningful reduction in India’s corporate tax rates to help spur investment and boost growth in the country’s slowing economy. These changes came as a positive surprise and send a strong signal that the government has recognized the stress that corporates face from weak sentiment and subdued economic activity. While there has been some concern that the measure will result in a decrease in revenues, we believe there are mitigating factors that could reduce the loss in revenues. It is also important to note that the level of impact differs from sector to sector, particularly in sectors subjected to the highest effective tax rates. For instance, banking would be a key beneficiary as it is a full-tax paying industry. Most consumer companies also benefit from the corporate tax cuts. However, companies that currently receive tax relief or incentives from the local state government will not benefit as much. Overall, we think India’s corporate tax cuts should help spur investment over the longer term. We continue to favor companies that can benefit from secular growth drivers such as favorable demographics, infrastructure investment, urban and rural consumption growth and increasing income levels.
- China recently announced the removal of the investment quotas under its Qualified Foreign Institutional Investor (QFII) and RMB Qualified Foreign Institutional Investor (RQFII) programs. Increasing market access for foreign investors has been an ongoing process, as China undertakes structural reforms to its capital markets and allows foreign firms greater control over their assets. The move also follows a recent decision to allow foreign financial firms an option to take majority stakes in joint ventures. Certainly, the lifting of these restrictions on foreign investment in China was a welcome surprise. However, we think it is unlikely to have a dramatic impact in the short term because the existing quota system was underutilized. If we see further measures to liberalize and enhance market access that will encourage index providers such as MSCI and FTSE to increase the inclusion factor, we think China’s weighting in global benchmark indexes will invariably rise, and passive funds may have no choice but to step up their purchases of Chinese securities. While the overall immediate impact of China’s move to lift restrictions on foreign investment may not be drastic, we think the initiative signifies China’s commitment and long-term strategic decision to further increase access to its financial markets.
- Optimism surrounding the government’s economic agenda, including the key social security reform, has resulted in a more favorable climate in Brazil. While the country’s economic recovery has been slower than expected, with the government forecasting gross domestic product (GDP) to grow by 0.85% in 2019, government and central bank efforts could improve the country’s longer-term GDP growth potential.1 Inflation has also remained under control, allowing the central bank to lower interest rates to record-low levels to stimulate the economy. We believe the approval of pension system reform is key to stimulating investment and credit, which should help improve economic activity, as well as help significantly reduce Brazil’s fiscal deficit. A major privatization plan has also been announced, and we expect tax and other reforms that could improve the ease of doing business to follow. We maintain a positive outlook on the equity market and continue to have a favorable view on domestic-oriented themes, including financials and consumer-related sectors.
1. 印度财政部长西塔拉曼（Nirmala Sitharaman）最近宣布大幅降低国内企业税率，以帮助刺激投资及促进该国放缓的经济实现增长。这些变化令人十分意外，并发出强烈的信号，即政府已意识到疲弱的情绪及低迷的经济活动给企业带来的压力。虽然有些担忧该措施将导致收入减少，但我们认为存在一些缓解因素可降低收入损失。同样值得注意的是，影响的程度因行业而异，尤其是在实行最高有效税率的行业。例如，银行业是一个全额纳税的行业，将成为主要受益者。大多数消费公司也受益于企业减税。然而，目前从地方州政府获得税收减免或激励的公司将不会享有同样多的裨益。印度的企业减税应有助于刺激较长期投资。我们认为企业将受益于长期的增长动力，如有利的人口结构、基础设施投资、城乡消费增长和收入水平的提高。
3. 在巴西，围绕政府经济议程的乐观情绪，包括关键的社会保障改革，造成更为有利的投资氛围。虽然该国的经济复苏速度慢于预期 - 政府预测2019年国内生产总值增长0.85%，但政府及央行的努力可能会改善该国的较长期国内生产总值增长潜力。通胀亦仍处于可控范围内，使央行能够下调利率至纪录低位以刺激经济。我们认为，巴西养老金体系改革获批准是刺激投资及信贷的关键，这将有助于改善经济活动，并有助于显著减少巴西的财政赤字。重大的私有化计划也已宣布，预期税收及其他改革将会改善营商环境。我们对股市维持乐观展望，并继续看好面向国内的投资主题，包括金融及消费相关行业。
The US-China trade conflict has remained at the forefront in recent months, with both governments imposing tariffs on each other’s goods. However, it should be emphasized any impact of the trade war has not been limited to China; rather, we have seen a global impact. While the resumption of trade talks expected in October indicates the willingness of both sides to work toward resolving outstanding issues, we remain cautious and expect continued volatility in the interim.
Political turmoil in the United States following the launch of an impeachment inquiry on the US President Donald Trump added to increased market volatility in the interim. However, reduced expectations of further escalation led investors to refocus on the US-China trade dispute and US Federal Reserve (Fed) policy. The Fed has reduced its benchmark rate twice in the last three months, with expectations rising for another rate cut by the end of 2019.
Slowing economic growth expectations, declining inflationary pressures and easing monetary policy in developed economies, including the United States and the eurozone, have led central banks in emerging markets (EMs) to generally turn more dovish this year. We expect this trend to continue with rate cuts in a number of larger EMs, including India, Brazil, Russia and Mexico. Coupled with improving earnings expectations and relatively undemanding valuations and dividend yields, we believe the outlook for EM equities remains attractive.
Emerging Markets Key Trends and Developments
Stock markets worldwide weathered a volatile quarter amid bumpy US-China trade negotiations and global recession fears. Central banks in several major markets, including the United States, cut interest rates to support economic activity. EM equities declined in US-dollar terms, while developed market stocks recorded a modest gain. EM currencies as a whole fell against the US dollar. The MSCI Emerging Markets Index lost 4.1% over the quarter, compared with a 0.7% return in the MSCI World Index, both in US dollars.2
由于美中贸易紧张局势再度加剧，以及人们对全球经济增长的担忧日益加剧导致全球股市在第三季度跌宕起伏。美国等几个主要市场的央行纷纷降息以支持经济活动。以美元计算，新兴市场股市下跌，发达市场股市则小幅上涨。整体而言，新兴市场货币兑美元汇率呈下跌趋势。摩根士丹利资本国际新兴市场指数(MSCI Emerging Markets Index)本季度下跌4.1%，以美元计算，该指数的回报率则为0.7%。
The Most Important Moves in Emerging Markets in the Third Quarter of 2019
Most Asian markets finished the quarter lower as trade tensions clouded the economic outlook for the region. The US-China trade row remained in focus—both countries announced more tariffs in August but made conciliatory moves in September. An escalating trade dispute between South Korea and Japan added to market uncertainty. Stocks in China and South Korea retreated. In India, equities fell as the economy’s momentum faltered, though corporate tax cuts and other stimulus measures helped stem the decline. Bucking the downtrend, Taiwanese equities rose. Suppliers to Apple were lifted by encouraging pre-orders for the latest iPhone.
Markets in Latin America declined over the quarter with Argentina, Peru and Chile leading the way down. Although declining, Mexico and Brazil performed better than their regional peers. Despite a rebound in September, the Argentine market lost nearly half its value in US dollar terms over the three-month period on increased political uncertainty, debt re-profiling and the imposition of capital controls. Market turmoil, however, remained largely contained to Argentina. Brazil’s central bank lowered its key interest rate by 100 basis points to an all-time low of 5.5% to stimulate the domestic economy. Progress on the reform front further supported investor confidence. In August, Mexico’s central bank reduced its benchmark interest rate for the first time in more than five years, citing weak domestic growth and lower inflation.
The Europe, Middle East and Africa region as a whole lagged their EM peers in the third quarter. South Africa and Poland were among the weakest performers, ending the quarter with double-digit losses. Turkey and Egypt, in contrast, recorded strong returns, while the United Arab Emirates (UAE), Qatar and Russia also outperformed regional peers. The South African Reserve Bank left interest rates unchanged in September, following a 25 basis-point cut in July, as it continued to balance economic growth concerns and inflation expectations. A weaker South African rand also pressured returns in US dollar terms. Attractive valuations in Russia and the UAE supported investor sentiment with some comfort, while a larger-than-expected 150 basis point interest-rate cut amid a downward inflation trend drove returns in Egypt.
第三季度，欧洲、中东和非洲地区整体表现落后于新兴市场同行。南非和波兰是表现最差的两个国家，在步入下一季度之前其损失已达两位数。相比之下，土耳其和埃及的投资回报强劲，而阿拉伯联合酋长国(UAE)、卡塔尔和俄罗斯的表现也强于亚洲其它国家。南非央行(South African Reserve Bank)继7月份降息25个基点后，9月份又维持利率不变，继续平衡经济增长担忧和通胀预期。南非兰特走软也令以美元计算的回报率承压。俄罗斯和阿联酋给出的颇具吸引力的估值在一定程度上吸引了更多的投资者，而埃及在通胀下行趋势下降息150个基点，幅度大于预期，推动埃及股市取得收益。
As at 31 December 2017
The graphic above reflects the views of Franklin Templeton Emerging Markets Equity regarding each region. All viewpoints reflect solely the views and opinions of Franklin Templeton Emerging Markets Equity. Not representative of an actual account or portfolio.
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What Are the Risks?
All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.
1. There is no assurance that any estimate, forecast or projection will be realized.
2. Source: Source: MSCI. The MSCI Emerging Markets Index captures large- and mid-cap representation across 24 emerging-market countries. The MSCI World Index captures large- and mid-cap performance across 23 developed markets. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or guarantee of future results. MSCI makes no warranties and shall have no liability with respect to any MSCI data reproduced herein. No further redistribution or use is permitted. This report is not prepared or endorsed by MSCI. Important data provider notices and terms available at www.franklintempletondatasources.com.