Looking beyond China in emerging markets

ASEAN, North Asia, Mexico and India all offer promising technology and investment-led expansion stories

China city

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Emerging market (EM) equities proved resilient in 2023 as the US dollar came off multi-decade highs. China, however, was a notable disappointment, dragging down overall index returns and shrinking from over 40% of the EM index to just 26%.

Although government policy support in China managed tail risks in real estate, it failed to restore confidence and a consumption recovery.

Putting aside these challenges in China, the EM backdrop appears constructive with a recovery in North Asian technology stocks underway, broader EM benefitting from an easing cycle, and the valuations in China being close to record lows.

Other parts of EM also have promising stories, such as the China +1 story which relates to supply chain restructuring that would favour ASEAN, Mexico and Korea, and the India story where the country is enjoying an investment-led expansion after years of policy reforms.

North Asian technology

While all eyes are on the ‘magnificent seven’, which now have an aggregate market cap larger than that of China, we do not want to lose sight of the opportunities that artificial intelligence (AI) could bring to emerging markets, specifically the North Asian tech companies. The region looks increasingly well-positioned for next decade’s big trends, such as structural demand for AI, cloud adoption and electric vehicles (EVs).

All these trends are set to drive growth, which will create tremendous value for the entire supply chain and ecosystem. Taiwan and Korea stand out given their dominance in the production of semiconductors and High Bandwidth Memory chips, followed by other important semiconductor suppliers like China and ASEAN economies (Malaysia, Thailand). China is also a powerhouse for production of components for the new energy businesses such as EVs and solar.

EM central banks have room to cut rates

EM central banks hiked interest rates aggressively in 2021 compared to their developed market counterparts, which helped them bring down inflation considerably. But now, with the Federal Reserve looking to be much closer to the start of its easing cycles, EM central banks in many cases have already embarked on their own rate-cutting cycles.

Latin America and parts of EMEA stand to benefit the most given very high starting real rates. For example Brazil, despite seeing five consecutive rate cuts, has a real rate of 8%. A further decline in these rates should support domestic growth, and in some cases, lower deposit rates may urge domestic investors to pivot into domestic equities.

Valuations in China

China continues to face headwinds, but there are still opportunities to capture alpha, especially when a lot of the bad news is already priced in. China is trading at 1.1x price-to-book, which is at its lowest levels since the Asian Financial Crisis, and there is likely upside once earnings begin to surprise positively.

While China’s regulation and policy formulation can be heavy handed, the policy pendulum looks to have swung more towards pro-growth and business since late 2022. That said, large fiscal stimulus has not been forthcoming as authorities are more focused on sustainable growth and removing tail risks from the real-estate sector. Despite the challenging macro environment, China is still a fertile ground for active investors.


While markets have certainly been more volatile, there are reasons to be more optimistic about EM equities: recovery in North Asian technology names, falling global inflation provides EM central banks room to cut, and close to record low valuations in China.

Enhancing your emerging markets allocation

JREM*, the JPMorgan Global Emerging Markets Research Enhanced Index Equity (ESG) UCITS ETF* seeks to exploit stock-specific insights in the EM equity market while maintaining index-like characteristics through robust risk management. The active ETF allows investors to capitalise on locally based stock research and active stock picking to uncover alpha opportunities in emerging market.

J.P. Morgan Asset Management’s Emerging Markets and Asia Pacific Equities team consists of over 130 dedicated portfolio managers and analysts across nine locations. JREM* also benefits from low tracking error market exposure and a cost-efficient investment approach. The fund managers aim for a tracking error of between 0.75% and 2.0% against the MSCI Emerging Markets Index. JREM has a TER of 0.30%, is classified as article 8 under SFDR and has assets under management of over $1.2bn.

This article first appeared in ETF Insider, ETF Stream's monthly ETF magazine for professional investors in Europe. To read the full edition, click here.

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