Mr. Tucker cited several factors behind this position of strength. Emerging markets have limited currency exposure on their debt, they have better macroeconomic management than in the past and in many cases, governments and central banks have more room to manoeuvre when it comes to policy.
Bright spots can be found across the broad universe of emerging markets. Middle Eastern countries, such as Saudi Arabia and Qatar, are benefiting from high energy prices, while India’s economy grew 13.5% in the April to June quarter2.
The resilience of many developing economies could lead investors to rethink how emerging markets should be traded when the global economy is under pressure, said Mr. Tucker. The traditional approach is to go underweight on the asset class when markets become averse to risk. The investment community, he said, is starting to realise that this is no longer necessarily the case.
Going forward, investors will be able to consider these fast-growing economies according to local factors, with less of a focus on their relation to developed economies.
Increasing affluence is another factor that is powering growth in emerging markets and strengthening a narrative of emerging market growth that is increasingly independent of developed markets.
In Asia excluding Japan, for example, absolute financial wealth grew by USD5.1 trillion in the 2020 to 2021 period3. Growing affluence allows people to spend more on a wide array of goods. This means demand from developed economies for manufactured goods will become relatively less important. This will lead to more trade directly between emerging markets.