EM Investors Want a “Recoupling” Next Year

EM Investors Want a “Recoupling” Next Year

When investors think of emerging markets, China looms intimidatingly large. It’s the world’s second largest economy, after all, and generates media attention to rival that of the US.

From regulatory crackdowns to trade wars, what China says and does matters for global stocks. It’s also around 35% of the MSCI Emerging Markets index, so if China has a good (2020) or bad (2021) year, then the rest of the complex moves with it.

Other EM countries tend to get overlooked, though, so that’s why we’re focusing on countries apart from China in this article. How have other emerging markets fared in 2021, and what’s the biggest issue facing them in 2022?

Emerging markets are a diverse bunch, so it’s hard to generalise about countries as geographically and economically dispersed as Russia and Indonesia.

Still, it’s fair to say that emerging markets overall have been weak this year, with the MSCI EM index in negative territory, down around 4% in the year to the end of November, against a gain of 18% in 2020--fuelled largely by China’s post-Covid-19 bounce. (The equivalent Morningstar EM index is also in negative territory).

That said, there have also been pockets of outperformance, such as India, Russia, Saudi Arabia and the