It’s become commonplace for professional investors to venture, every December, that the year ahead might finally bring better times for emerging markets. Those hopes have rarely proved accurate. Yet this story did finally play out in 2023 – albeit not in a way that was particularly easy to capitalise on.
Headline returns for this year don’t look that alluring, particularly once you factor in the high-risk nature of EM investing. As of 1 December, the MSCI Emerging Markets benchmark was up around 5 per cent. But this mediocrity is in part due to China, which now makes up a third of the index and whose equities have collectively shed 10 per cent this year. The next largest benchmark allocations, India and Taiwan, have put in good performances. And Brazilian equities, while nowadays constituting just 5 per cent of the index, have soared.
Capturing these returns is easier said than done. Taking single-country bets involves ratcheting up risk even further. And converting returns to sterling, as all domestic investors must, ate away at performance for all these markets in 2023.