Emerging Markets in the Age of Transformation

As accelerated disruption transforms the macro environment, we expect more volatility – and investment opportunity – within emerging markets.

Accelerated by the COVID pandemic, secular trends are disrupting the global macroeconomic environment. Accordingly, we have updated our framework for gauging risks and opportunities in emerging markets (EM).

Over the past two decades, emerging markets have typically been “condition takers,” each country having some degree of sensitivity to Chinese economic growth and U.S. interest rates. Yet we believe these traditional external drivers will ebb in importance. In fact, we foresee slower Chinese GDP growth dampening its influence on EM business cycles. And the “low for longer” U.S. interest rate backdrop should lessen the U.S. Federal Reserve’s influence on capital flows to emerging markets, in our view.

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Pramol Dhawan

Portfolio Manager

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All investments contain risk and may lose value. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Outlook and strategies are subject to change without notice.

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