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Graph of the week – Why aren’t emerging market equities outperforming with China reopening?

This material is intended for Institutional Investors (as defined in the Securities and Futures Act, Chapter 289 of Singapore) only and is not suitable or intended for persons who do not qualify as such.

The outperformance this year of developed market equities relative to their emerging market peers is striking. It’s also counterintuitive given the expectations that China’s reopening would lead to outperformance of emerging market equities.

One explanation lies in the fact that interest in generative artificial intelligence (AI) has bolstered a rally in large cap tech stocks. The S&P 500 index has rallied 10% so far this year while the NASDAQ is up 27%.

Since the start of 2023 equities and specifically growth/tech stocks have rerated on the back of the fall in interest rates. This may reverse, however, if the market’s expectations for a near-term pivot from the Fed to cutting interest rates are disappointed.

Earnings for US tech stocks did come in better-than-expected whereas those of Chinese tech stocks were disappointing. It may be that the full impact of China’s reopening is yet to come.

Our multi-asset team would be more inclined to view any further rally in US equities as an opportunity to consider establishing an underweight position.


Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk. This material is produced for information purposes only and does not constitute: 1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. It does not have any regards to the specific investment objectives, financial situation or particular needs of any person. Investors should seek independent professional advice before investing, or in the absence thereof, he/she should consider whether the investments are suitable for him/her.

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