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The Point
Quick, actionable insights for investors
Emerging Markets
Samir Mehta: Trump tariffs are unlikely to impact China’s big online retailers
Investors should be ready for any scenario as Donald Trump weaponises trade tariffs.
This week we await the outcome of a call between Trump and Chinese president Xi Jinping to find out if tit-for-tat US-China tariffs will be paused as they were for Mexico and Canada.
But either way it would take a lot to disrupt the momentum of China’s big online retailers, argues Pendal’s Samir Mehta.
Last year China’s four big online shopping platforms – Alibaba’s AliExpress, TikTok, Shein and Temu – shipped almost $US200 billion worth of goods internationally. Of that, some $45 billion went to the US.
In anticipation of tariffs, Temu and Shein had already modified bulk shipping, diversified logistics and expanded their US networks. Meanwhile as TikTok’s future hung in the balance, Americans flocked to another Chinese app: Xiaohongshu.
“When a product provides a value proposition far superior to alternatives, tariffs might temporarily alter – but not permanently change – human behaviour,” says Samir.
Samir Mehta: How luxury stock Prada is making a fashionable comeback
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Samir Mehta: How luxury stock Prada is making a fashionable comeback
Samir Mehta: Tune in to Tencent Music if you’re looking for a hidden gem
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Samir Mehta: Tune in to Tencent Music if you’re looking for a hidden gem
WHO is the Bob Dylan of music streaming?
That’s the question Pendal’s Samir Mehta posed at the Sohn Hearts & Minds Conference in Adelaide last month.
For most, the answer is obvious: Sweden’s Spotify has revolutionised the way we consume music, dominating developed markets and setting the benchmark for subscription-based streaming.
But in investing – just like in music – real success is found beyond the obvious.
For every Bob Dylan – whose sandpaper voice and sermon-like lyrics changed the face of music worldwide – there’s a Sixto Rodriguez: overlooked by mainstream audiences until an Oscar-winning documentary, Searching For Sugar Man, revealed he had been quietly building a cult following in small but devoted markets.
“Spotify has done a brilliant job in developed markets, but there’s lots of other markets that still have potential,” says Mehta, who manages the Pendal Asian Share Fund.
“What we need to do is search for the Sugar Man of streaming.”
“Music follows exactly the same trends across the world – and the Sixto Rodriguez of streaming is China’s Tencent Music Entertainment.”
Emerging markets: What we learned from one of the biggest election years ever
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Emerging markets: What we learned from one of the biggest election years ever
If it feels like a hectic year for emerging markets investors, you’d be right.
So far 66 national elections have taken place around the world in 2024, according to the International Institute for Democracy and Electoral Assistance – an intergovernmental organisation that supports democracy.
And another eight or so are still scheduled before the new year.
In a new webinar, Pendal EM fund manager Ada Chan discusses major trends emerging from these polls, along with other issues.
EM Investors can expect more certainty in 2026, she says.
“We will have to wait and see the details on many Trump Administration policies … and implementation is key from the US.”
Investors in China should focus on domestic industries, rather than manufacturing exporters, as we wait to see if Trump carries through on this week’s tariff threats.
There are also actionable lessons to be drawn from elections in Indonesia, Mexico and India, Ada says.
She explains more in the webinar
Emerging markets: China’s property industry is responding to stimulus
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Emerging markets: China’s property industry is responding to stimulus
In September, Chinese policy makers announced stimulus measures that brought about the prospect of change for its beleaguered property industry.
Now, early data is beginning to suggest cautious optimism is warranted for a turning point, says our emerging markets team.
Emerging markets: Brazil and China buoyed by monetary surprises
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Emerging markets: Brazil and China buoyed by monetary surprises
September and October are often monumental months in global markets and economics.
Think of the Asian economic crisis in late 1997 and the GFC in 2008.
This year’s start to Spring may not be quite as pivotal, but we’ve nevertheless seen unexpected and drastic changes in Brazil and China, our emerging markets team notes.
In a new article, the EM team outlines good numbers in Brazil’s manufacturing industry, retail sector and equity markets.
While inflation pressure has led to a local rate hike, expectations for lower US rate cuts has eased pressure on EM economies and their currencies.
“Together, these developments have further enhanced our enthusiasm for Brazilian equities,” the team says.
Meanwhile, the team remains confident in its overweight China position as policy changes start to move at a fast clip.
“We consider China’s low inflation, large trade and current account surpluses, earnings growth in parts of the equity market, and attractive equity valuations as reasons to maintain holdings in Chinese equities.”
Read more here
Emerging Markets: Where to look for investment opportunities in Asia
Asian economies are shaking off China’s slowdown and showing signs of renewed vigour, sparked by a wave of tech innovation and a global trend to supply-chain diversification.
That’s the view of Ada Chan, a portfolio manager with Pendal’s emerging markets team and Samir Mehta, who leads Pendal’s Asian shares strategy.
Renewed optimism for Asia is a reminder to avoid the trap of assuming temporary challenges are here to stay, says Samir.
“Headlines about tariffs and geopolitics are all we hear of.
“But each and every company we meet with is reacting in a different manner, adjusting and getting more competitive to deal with these challenges.
“All the company meetings we do and the managers we meet make us reasonably confident that if liquidity conditions get better – which is the potential in the next 12 to 18 months – Asia could be well set for a decent run in terms of economic activity and potentially even stock market performance.”
In this article, Samir and Ada explain how to find investment opportunities in China, Taiwan, Korea and India – read more.
Emerging markets: Why China is unlikely to face a Japanese-style ‘lost decade’ despite its cloudy outlook
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Emerging markets: Why China is unlikely to face a Japanese-style ‘lost decade’ despite its cloudy outlook
There is a temptation to see China falling into the same kind of balance-sheet recession that Japan experienced after its late 1980s boom, says Pendal’s emerging markets team.
Japan’s Nikkei index has only just this year regained its 1989 peak after a series of so-called “lost decades”.
Given the historical pattern of a decade-long, debt-driven real-estate boom followed by what looks like a debt-deflationary slowdown, do Chinese equities also face a similar “lost decade”?
From beer to luxury products to cosmetics to cars, a clear pattern has emerged among western multinational companies warning about weak Chinese demand.
But a closer look at company results shows a different, more promising pattern, argues Pendal’s team in a new article.
Many Chinese domestic companies are reporting good results and earnings growth. Consensus estimates of future earnings are also being revised up.
There are opportunities to be found in Chinese equities, the team argues. “We remain overweight Chinese equities in the portfolio, with exposure to a highly selective set of stocks.”
Read more here
Global market volatility should be positive for stocks in some emerging markets
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Global market volatility should be positive for stocks in some emerging markets
In the EM space, market segments with the highest exposure to international investors saw the greatest weakness during the recent bout of market volatility.
Pendal’s Global Emerging Markets Opportunities team spotted opportunities amid the volatility – but not necessarily in the obvious places.
“In EM equities, the pain was concentrated in the IT sector, especially in Korea and Taiwan,” the team said in a recent report.
“We find hard to be overly positive about the IT sector, despite a reset in valuations.
“The entire sector has re-rated substantially in recent years, despite essentially soft demand in important end-demand segments such as PCs and mobile phones.
“This optimism has been attributed to a potential demand shift from widespread adoption of generative artificial intelligence.
“But beyond some key semiconductor names held in our portfolio, we have not seen sufficient evidence of this opportunity.”
Instead, look to companies in Mexico and Brazil, which appear to be well placed in the medium term, the team said.
Emerging markets: The drivers creating conditions for stronger returns
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Emerging markets: The drivers creating conditions for stronger returns
Emerging equity markets tend to be driven by two broad global drivers:
- Global end demand and trade
- US dollar interest rates and liquidity
Each EM country also has its own business and credit cycles to consider, along with local political environments. But these factors are always interacting with the two main global drivers, points out Pendal’s emerging markets team.
Right now, one of the challenges for EM investors is interpreting differing signals from these drivers.
In an article, Pendal’s UK-based Global Emerging Markets Opportunities fund managers say that global demand indicators – such as manufacturing data – look supportive for EMs such as India, Brazil and Indonesia.
Consumer confidence also looks robust in these three markets.
But the other half of the story is the US dollar’s continuing strength and caution about the future direction of US monetary policy.
In this article, the team explains why they remain confident that US dollar softness – when it comes – will create the conditions for strong returns in certain countries.
Emerging Markets: Mexico and Brazil could benefit from bigger-than-expected rate cuts
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Emerging Markets: Mexico and Brazil could benefit from bigger-than-expected rate cuts
Pendal’s emerging markets team expects significant interest rate cuts in Mexico and Brazil, increasing their attractiveness to investors.
Although many developed and emerging markets have been cautious on lowering rates, Latin America has embarked on a broad rate-cutting cycle including Mexico last month.
“It’s true that some Latin American central banks that were quick to cut are now turning more cautious — notably Chile and Peru,” says James.
“But we believe Mexico and Brazil should both be able to deliver hundreds of basis points of cuts in policy interest rates over the next 24 months.”
Rates in both countries should come in much lower than consensus expectations in coming quarters, James says.
“This should bring an even more-positive boost to economies, corporate earnings and equity market returns.”
How the biggest election year in global history will affect emerging markets investors
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How the biggest election year in global history will affect emerging markets investors
The US election will take the spotlight in November, but emerging markets investors will need to keep tabs on dozens of other national polls this year.
“2024 has the highest concentration of elections, possibly in modern history,” says Paul Wimborne, a senior find manager in Pendal’s emerging markets team.
“There has already been presidential elections in Taiwan and later this year there will be elections in India, Indonesia, South Africa and Mexico.”
Those countries represent 40 per cent of the MSCI Emerging Markets Index by weight and 1.9 billion people.
Investors will need to consider the ramifications of elections with the potential to affect the global macro environment that matters so much to emerging equity markets.
These include Russia in March and the US in November.
While Israel is not schedule for an election, the emergency government formed after the Hamas attacks may not last throughout 2024.
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