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Martin Currie, Alastair Reynolds: Headwinds and tailwinds- who stands to benefit from the new investment landscape?

Martin Currie’s Alastair Reynolds comments on who will benefit from the headwinds and tailwinds of the new investment landscape

“Recent market events have shaken us all and, although the long-term investment outlook for emerging market equities remains positive, we thought it pertinent to revise our outlook in the shorter term. Against the backdrop of new developments and ongoing trends, we highlight some of the sectors we think will face headwinds and those which may benefit from tailwinds in this new environment.”

Financials

“Under a backdrop of higher interest rates in the US and several emerging market economies, we see positive implications from the top down as well as bottom up for financials. Typically, we observe higher rates impacting financial stocks through higher revenues from loan and investment books. Financials are the strongest performing sector year-to-date in MSCI emerging markets.

 “Latin American stocks, particularly in Brazil, made broad based gains this year, with energy and mining companies leading the way. As a commodity-rich region, it stands to benefit from the supply chain disruption in Russia and the East, as well as from investors’ diversification efforts.

 “The increase in oil prices and US rates has been supportive of Middle Eastern equities this year too – further compounded by the style rotation which has favoured value-oriented stocks over quality growth stocks.”

 

 

Commodity-rich countries and sectors

“In the shorter-term, the impact on commodity markets from the Russia-Ukraine conflict has already shown that the equity markets in commodity-rich or commodityproducing countries have experienced broad-based strength. On top of this, with the developments in Russia and China, there have been increased asset flows as investors have sought to diversify across their emerging market exposure. We anticipate that this will continue at least in the short term as the conflict continues without resolution and sanctions persist.”

Green energy companies

“Companies whose products and services support the green energy transition may stand to benefit in the medium term as well as the long term. The supply chain concerns around commodities such as fossil fuels, metals and agricultural products, for which Russia is a key global producer and exporter, have led to volatility and price increases.

“Read more on the topic in our note on Supply Chain Disruption. In particular, the impact on fossil fuels may provide momentum to accelerate the global theme of transitioning to cleaner forms of energy.”

 

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