Skip to main content

Download

Audience for the document: Share Class: Language of the document:

Download

Share Class: Language of the document:

Change Details

If you need to change your email address please contact us.
Subscriptions
OK
You are ready to start subscribing.
Get started by going to our products or insights section to follow what you're interested in.

Products Insights

GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the twenty four-year period ended June 30, 2020, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

Other Literature

You have successfully subscribed.

Notify me by email when
regular data and commentary is available
exceptional commentary is available
new articles become available

Thank you for your continued interest

Please enter valid search characters

June 2022 / VIDEO

What lies ahead for emerging markets?

Video Transcript

What is the growth outlook for emerging markets?

The outlook across emerging markets as a whole is decidedly mixed, with considerable variation across the regions of EM. So, for example, I think the outlook is brightest in Asia, where the economies are just opening up after a long COVID period of facing the challenges in 2021. As we've seen in other parts of the world, that opening up leads to a real natural lift in domestic demand in the economies – and they're just getting going.

However, in other countries, LatAm and central Europe in particular, I think the outlook is more challenging, based on two factors. The first is central banks are taking action to slow the economies down in order to deal with high inflation that they're facing. And in particular, some of the countries are quite well advanced along that path of hiking. We should start to see the impacts show up in the back half of this year.

The second is headwinds from developed markets – in particular as developed markets also begin the process of hiking interest rates and slowing domestic demand. But also we should see a rotation of demand from the goods that were consumed during the pandemic and the lockdowns to services and going out again, which are much more domestically oriented for those economies.

So I do see EM exports slowing down and that being a drag on growth, particularly in Latin America and central Europe as well.

How much of a threat is the war in Ukraine to the post-Covid EM recovery?

The war in Ukraine and the tragic course of events that have taken there is also a threat to emerging markets, not so much from the war directly, but from the spillover effects that we're seeing, particularly in commodity markets and food markets. So the war has broken out. It's been an absolute tragedy. I think the markets underestimated the probability of a war because these types of events are so infrequent. But what we've seen is that Ukraine itself is a major food producer for the rest of the world. It particularly exports food, wheat, and edible oils, and these types of items are going to be in shortage across the world.

The second threat from the war in Ukraine, though, is on the fertilizer side, where Russia and Belarus are major fertilizer exporters. They're under sanction. And that will make it harder for the rest of the world to make up for Ukraine's lost production. And the third threat that's going on is whether there'll be energy sanctions on Russia or not. So far, the U.S. and EU have largely avoided completely cutting off Russian energy exports to the world. But if they do so, that would create a deficit in the energy side. And we've seen some of that play out in terms of rising energy prices that’s starting to put pressure on inflation across the world.

What impact is inflation likely to have on EM over the next year?

Inflation has been the big challenge to both emerging markets and developed markets this year. It started last year. It's been a major surprise at how sharply inflation has surged on the back of reopening economies. In emerging markets, it's been particularly notable in Latin America and central and Eastern Europe.

It's definitely a threat to growth. Central banks are having to respond quite forcefully in order to get it back under control. Emerging markets in particular take inflation quite seriously. I would say central banks responding to inflation is actually a sign of institutional success of emerging markets where they put in place inflation targeting regimes over 20 years ago.

And so the central banks are acting very quickly to make sure that the initial surges in inflation, do not translate into second-round effects or unhinge inflation expectations. So a number of them have raised interest rates several hundred basis points, and they're continuing to go, I think they're, what they're trying to do is signal that they'll do what is necessary in order to bring inflation back under control. Right now, I think they're trying to navigate in a way by the stars, to use a phrase that others have used. But the inflation models that they're using have largely broken down.

And so what they're trying to do is fuel their way to what's enough in order to contain inflation. I think some of the countries are now quite late cycle, but others, like Asia, where the economies are just starting to open up, have not even begun to hike rates in a serious way yet. And that will become the focus, I think, over the course of the second half of this year and 2023.

Where could be the best opportunities in EM in the period ahead?

Right now, EM asset classes broadly are fairly challenged, and I think the opportunities in the next few months will be fairly limited. But I think broader opportunities will open up in the back half of the year and in 2023.

In particular, I like the local interest rates in countries that have done a lot of the hiking work and where I think that inflation may be starting to show signs of topping out or at least should be on a trajectory to top out in the next six months. So there we’ll see room for central banks to slowly begin to reverse course and cut rates potentially in 2023, making for attractive duration opportunities in that space.

In FX, I think it's a lot more challenging. I think it will be a lot more tied to the outlook for the broad dollar, which is being pulled up by the Fed's aggressive hiking action and belated hiking action. A lot EM currencies screen very structurally cheap, but it will be difficult for them to rerate in a sustainable way. I think they may be able to get some cyclical uplift if terms of trade improve, particularly for commodity exporters.

And finally, in the dollar bond space, I do see some valuation opportunities opening up in the high yield space, particularly relative to U.S. high yield opportunities. In the IG part of the US dollar space in EM, valuation is actually fairly tight and I think that reflects the defensive nature of some of the balance sheets in those countries that they've done a lot of work to shore those up over the years.

But broadly in the credit space, I think as the Fed continues to tighten financial conditions, the credit space overall will remain challenged. It's just that I think EM has priced more of that challenge in than other credit assets in U.S. dollars.

IMPORTANT INFORMATION

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass.

The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

USA – Issued in the USA by T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, MD, 21202, which is regulated by the U.S. Securities and Exchange Commission. For Institutional Investors only.

© 2022 T. Rowe Price. All Rights Reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

Previous Article

June 2022 / EMERGING MARKETS

The Case for China Remains Strong
Next Article

June 2022 / EMERGING MARKETS EQUITY

Are the Clouds Set to Clear for Chinese Equities
202205–2195630

You are now leaving the T. Rowe Price website

T. Rowe Price is not responsible for the content of third party websites, including any performance data contained within them. Past performance cannot guarantee future results.