Fiscal reforms a tailwind for key emerging market economies


Despite near-term concerns and likely volatility across the global equity market, we believe the long-term fundamentals in emerging markets will continue to offer opportunities. We base our view on several key characteristics, including:

  • Emerging markets generally are in the early stages of their developmental life cycles.
  • Favorable demographics, increasing incomes and improving financial markets can make emerging markets attractive for trends in consumption, productivity growth and innovation.
  • The emerging world is home to many high-quality companies that often are driving innovation in both their home countries and around the world.

In addition to the long-term drivers, we believe other factors will support emerging markets through year end:

  • Dovish policy from the Fed removes one of the headwinds that emerging market currencies faced in 2018.
  • Many emerging market nations are likely to continue to grow GDP at a healthy pace, despite global growth deceleration. We consider this to be a foundation for wealth creation and the middle class consumption growth that underlies many of the potential investment opportunities in the region.
  • While visibility into future earning is foggy, we think the emerging markets offer better value relative to the U.S. Because the effects of the tax cuts and one-time benefits that accelerated U.S. corporate earnings in 2018 have passed, we believe emerging markets now offer a more favorable risk/reward profile.

Factors affecting key emerging markets for remainder of 2019

China (including Hong Kong)

With a prolonged trade war now becoming a likely scenario, we expect China to continue stimulus. We already see early measures that are benefiting the private sector, personal consumption and infrastructure spending, and we think more such measures are likely. In addition, China has announced a number of policy changes focused on infrastructure spending, increased access to credit for the private sector, tax cuts and fewer regulations on a variety of industries.


After a record-setting recession, Brazil is in the early stages of a recovery. There is evidence President Jair Bolsonaro and his pro-reform cabinet plan to tackle the country’s fiscal imbalances by addressing pension reform, which may be met with pushback, but remains necessary. We think that effort will be matched by the privatization of state-owned companies and auctions of infrastructure and selected energy acreage.


Prime Minister Narendra Modi has defended his incumbency after taking the country through tough reforms such as demonetization and a goods and services tax. We believe the reelection of the Modi government is positive for India because the country can continue the reforms laid out in his first term.

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The opinions expressed are those of Ivy Investment Management Company and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through July 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.