Emerging Markets Equity Outlook

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Pandemic Clouds the EM Outlook

Emerging markets have rallied, but at a slower rate than developed markets. Latin America hasn’t convincingly flattened the curve, and Mexico and Brazil are two of the world’s most concerning virus hotspots. Because emerging markets tended to impose more restrictive measures in mid-March, questions remain about the pace of the region’s return to normalcy. It’s possible the coronavirus could linger longer than most experts originally projected and disrupt global economic activity far longer than we thought.

On the positive side, as China brought the pandemic under control, relaxing its restrictive measures led to a pickup in economic activity. Though the normalization in production outpaced consumption, China’s V-shaped recovery appears to be on track. We remain positioned in businesses that support the shift toward more online activities, such as shopping, and platforms for work and consumer services, such as education. Lessons learned from the virus outbreak should intensify demand and investment in these areas.

More broadly, we believe the compelling long-term case for EM equities is intact. The emerging consumer class continues to grow and assert its demand for quality of life improvements. Equity valuations and earnings growth rates across the asset class continue to be attractive relative to developed markets. Fed policy has resulted in a weakened U.S. dollar, which historically supports EM currencies. Extremely accommodative central bank policies across the global should continue to support EM currencies and increase economic growth.

Even though some emerging markets may lag developed markets in returning to more normal economic and consumer activity levels, we believe the long-term case remains intact. We’re focused on companies exposed to stay-at-home trends and those exposed to local consumers.

U.S.-China Tensions Are Rising. Again.

Exacerbated by the impact of the coronavirus outbreak, U.S. distrust of China has reached a new level. Leaders on both sides of the congressional aisle want to fundamentally reexamine the U.S.-China economic relationship. Meaningfully addressing that relationship will likely be a top priority for the president and Congress regardless of the November election’s outcome.

The confrontation has expanded beyond trade to now include technology, export control and prohibitions on U.S. companies doing business with Chinese companies such as Huawei. There are also financial tensions around investment restrictions on federal pensions and restricting Chinese companies on U.S. exchanges. Geopolitical conflicts relate to Hong Kong and the South China Sea. At the same time, China claims the U.S. is taking advantage of its policy allowing U.S. companies access to the Chinese domestic market. It has threatened to counter any U.S. measures with similar economic penalties and warned the U.S. to stay out of its internal affairs.

Various economic and political crises have pressured emerging markets over the last few years, and many of them weighed on returns in the short-term. Note, however, that this asset class has managed to rise above these short-term headwinds to reassert its attractive investment case.

We’re monitoring the U.S.-China relationship, which is reemerging as a potential source of volatility as the U.S. election season ramps up. 

Q3 2020 Investment Outlook Resources

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

International investing involves special risk considerations, including economic and political conditions, inflation rates and currency fluctuations.

Alternative mutual funds that hold a variety of non-traditional investments also often employ more complex trading strategies than traditional mutual funds. Each of these different alternative asset classes and investment strategies have unique risks making them more suitable for investors with an above average tolerance for risk.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. Current and future holdings are subject to market risk and will fluctuate in value.

Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.

Diversification does not assure a profit nor does it protect against loss of principal.

Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.

Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.

Past performance is no guarantee of future results. Mutual fund investing involves market risk. Investment return and fund share value will fluctuate. It is possible to lose money by investing in mutual funds. 

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

This information is for educational purposes only and is not intended as investment or tax advice.

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