1. We believe China’s market valuations appear to be near a floor and could be well-supported from here. We expect China to maintain its zero-Covid-19 stance well into the year to safeguard the success of the Winter Olympics and the Chinese Communist Party’s 20th National Congress. International travel and other mobility restrictions will limit economic activity. We believe that last year’s regulatory changes are partly a function of China’s political cycle, which is likely to culminate in the 20th National Congress. As the political dust settles, regulatory clarity should eventually return, as it has in past political cycles. On a positive note, China’s authorities have shown that they still have a strong pro-growth agenda and have no intention to choke the private sector with rules. They have the policy tools to stabilise growth and are ready to use them if needed.

2. Valuations in Brazil have fallen to extremely low levels, creating interesting investment opportunities. Concerns over potential fiscal laxity, rising interest rates and political uncertainty ahead of the upcoming general elections have led to the market selloff in the second half of 2021. Even then, Brazil’s fundamentals appeared healthier to us than they have since its last recession. More recently, its fiscal and current accounts have improved, with higher oil prices aiding the net oil exporter. We view Brazil as a Covid-19 recovery play and its economic growth could surprise on the upside, aided by efficiencies arising from a thriving internet economy.

3. Positive structural forces remain apparent across emerging markets (EMs) and are likely to foster fresh investment opportunities. Digitalisation is a key theme. The consumer internet industry has so far led the way in digital transformation, though we have also begun to see industrial internet applications take off as manufacturers tap innovation to raise productivity. The continued semiconductor shortage globally underscores the huge demand for chips coming from technology advancements, and we expect strong earnings for some of the world’s largest semiconductor companies in markets such as Taiwan and South Korea. Decarbonsation is another trend to watch. Major EMs’ pledges to achieve carbon neutrality are likely to intensify electrification and renewable energy efforts, creating multi-year support for relevant industries.

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