Introduction
The global investment landscape is constantly evolving, and emerging markets have recently caught the attention of investors. According to a recent report by UBS, a leading global wealth manager, these markets continue to present an attractive investment opportunity despite short-term volatility.
Emerging Markets’ Performance
The first half of the year has seen a positive trend in emerging markets, with the MSCI EM index rising by 24% since April’s lows. Currently, these stocks are trading at 13.2 times future earnings, which is above their 10-year average of 10 times.
UBS’s Perspective on Emerging Markets
UBS maintains a positive outlook on emerging markets, particularly the technology sector in China. The bank anticipates a profit growth of 25-30% for Chinese tech companies by 2025, driven by advancements in artificial intelligence, positive cloud trends, and strong government support. This includes investments in semiconductor self-sufficiency and export restriction relaxation for chips.
Short-term Volatility
However, UBS acknowledges that short-term volatility is likely to persist due to the evolving US trade policy and new tariffs, which increase international uncertainty. Additional uncertainties arise from pending sectoral tariffs and transfer issues.
US-China GPU H20 Licensing
The recent US decision to grant licenses for the sale of GPU H20 to China is viewed positively by UBS. Nevertheless, legal and political risks remain high.
India: A Preferred Market
Despite the uncertainties, India remains a preferred market for UBS. This is backed by strong profit recovery, a boost from the financial sector, and limited geopolitical and tariff risks. Upcoming catalysts, such as declining bond yields, should further support India’s attractiveness.
“We maintain a positive view on Brazilian equities, supported by a favorable medium-term macroeconomic context and an attractive dividend yield of around 5%. However, we anticipate short-term volatility,” states the UBS analysis.
Mexico: Not Among UBS’s Preferred Emerging Markets
Mexico Active
The Mexican stock market has experienced a dry spell regarding Initial Public Offerings (IPOs) due to various factors, including the Covid-19 pandemic affecting capital market placements. However, Tania Santoyo, Director of Investment Banking Capital at Actinver, explains that the market is active in other areas, like structured instruments.
Santoyo mentioned Actinver’s role as an intermediary in Fibra Prologis’s acquisition of its competitor, Fibra Terrafina, last year. They also advised Desarrolladora Vinte in the Javer acquisition, closing the deal in December 2020. Despite the capital market’s activity, 2020 was different.
“Investors remain cautious but willing to invest in high-growth Mexican companies,” Santoyo said. “The capital market is an excellent option for fundraising and accessing resources, which will make companies more robust and inspire confidence.”
