My Road Map for 2024

CIO designate Sean Taylor discusses his investment outlook for the year ahead and how he sees 2024 unfolding for emerging markets, regionally, economically and thematically.

The outlook for emerging markets, I think, is better than it has been for the last 10 years. U.S. interest rates are looking downward not upward, many key emerging markets are in strong fiscal health, and earnings growth in the U.S. is projected to slow, potentially raising the appeal of other investment destinations.

Taking interest rates first, inflationary pressures have receded, in our view, and it’s now a question of how long the Federal Reserve holds out before embarking on rate cuts. And a downcycle in U.S. rates is good for emerging markets everywhere provided it’s not too rapid. In Brazil, real interest rates are around 8%* and rates could come down dramatically there. Falling U.S. rates also tend to put downward pressure on the U.S. dollar which is very positive as it encourages capital flows to overseas markets including Asia.

In terms of the financial condition of emerging markets, it’s fair to say many have dealt with the COVID crisis much better than they have previous crises. They were much more attuned to the need to increase interest rates and were a lot more coordinated with the Fed. And they didn’t use money to fiscally support consumers like developed economies did. Their finances are in generally good shape and earnings growth in many areas are on good trajectories.

“The real opportunities, we believe, certainly for this coming year, are domestic structural growth drivers in emerging markets. Importantly, these could offset any slowdown in global trade and economic activity,” CIO designate Sean Taylor.

While I’m bullish on the outlook for emerging markets I recognize that the last 10 years have been challenging in large part because the U.S. has done so well, largely because of its superior earnings growth. A lot of this has been due to innovation and increasingly the performance of a handful of tech giants, the so-called ‘Magnificent Seven’. I'm not saying that the U.S. won't deliver positive returns for investors over the next couple of years but it’s going to get a lot harder, in my view.