Emerging markets (EM) have found themselves in a complicated position as we round the corner into late 2023, experiencing a mixed bag of performance by geography. South Korea and Taiwan are making big strides. By comparison, ASEAN markets such as Thailand have been flailing due to less robust domestic demand and less vulnerability to technology industries. The trajectory of the US dollar remains a critical factor influencing EM, as countries strive to navigate both opportunities and threats.
The latter has been particularly true for the recent emerging markets rally, which has been almost entirely driven by South Korea and Taiwan. These countries have taken advantage of skyrocketing demand in the semiconductor and AI hardware space. With global interest in the tech sector still booming, both nations have strategically placed themselves at the cutting edge of this tech gold rush. Their strong performance is in a wholly different world from that of ASEAN markets, where economic troubles continue to mournfully abound.
ASEAN Markets Struggling
Most ASEAN markets, especially Thailand, have suffered from the impact of a slowdown in domestic demand. Economic indicators continue to point toward lackluster consumer spending, continuing to drag down broader market sentiment. These countries are uniquely disadvantaged from the rapidly growing tech sector. This lack of access to global markets has greatly inhibited their growth potential compared to their North Asian counterparts.
It is not an easy time for ASEAN nations at all. They have to address external pressures, such as tariff escalations, that threaten to hurt U.S. exporters. Ongoing U.S.-China trade tensions have exacerbated uncertainty over the economic outlook, making recovery more challenging in this region.
Beyond these challenges, there are indications that ASEAN markets might be bottoming out. The expansion of domestic sourcing should be driven by diversification, say analysts. They know that smart investments in high-tech sectors pay dividends in long-term, sustainable returns. Short-term outlooks are still anemic as domestic demand continues to hang over performance measures like an anvil.
Strength in North Asia
South Korea and Taiwan are beacons of hope, in stark contrast to ASEAN’s lamentable failures. Compared to their counterparts, they shine like beacons of growth in the emerging markets landscape. Both countries have ridden a wave of new demand for semiconductors and AI-related hardware, pumping up both countries’ stock markets. Global technology companies are keen to enter into partnerships and improve their supply chain capabilities. As such, this trend will unfortunately continue, even as interest in artificial intelligence applications expands like wildfire.
It is not only the stability in Chinese equities that has fed in a positive way to the North Asian growth story. Easing concerns regarding China’s economic slowdown have fostered renewed optimism in tech sectors, especially with increasing policy support aimed at bolstering the economy. Yet as China’s investments in technology continue to develop, markets such as Vietnam could experience more long-term demand for their tech-based exports.
Additionally, the AI-related supply chains being formed in North Asia offer new, robust growth engines to all countries across the region. Local businesses are quickly embracing new technologies. Because of this, nations such as South Korea and Taiwan are ideally suited to capitalize on these trends and increase their global market share.
Opportunities Beyond North Asia
As dynamic growing markets, Latin America and much of EMEA (Europe, Middle East, and Africa) are exciting opportunities. The most important structural factors include the relatively good conditions for resource-rich nations in Latin America, thanks to high metals and energy cycles. With these credible policy environments winning the battle for foreign investments, the region has already laid a great foundation that will undoubtedly yield future dividends.
Likewise, the fortunes of parts of EMEA are starting to look up as a result of strong policy narratives that provide the foundation for durable investor confidence. And countries like India and Mexico are pursuing these reforms to make their markets more attractive. The synergy of consistent, predictable policies and access to abundant resources puts these regions in an enviable position during a time of worldwide economic uncertainty.
Additionally, the resolution of negative trade vibrations, most notably between the U.S. and China, has brightened the overall prospects for EM assets. An end to tariff rounds would ease the uncertainty hitting exporters, opening space for a more balanced trading environment. As trade relations normalize, Asian importers will profit from easing energy prices as well, boosting consumer spending prospects.
Looking Ahead: Earnings Expectations
Looking forward, earnings expectations for EMs remain strong. Projections show the U.S. increasing that lead with increases of 11.3% in 2025 and 15.0% in 2026. These projections shed light on a bright future for investor returns particularly in the multifamily, industrial, and commercial construction sectors.
The consumer boom inside emerging markets is another possible long-run driver for growth. As populations grow and more middle-class consumers enter the global economy—particularly in developing nations—demand for goods and services cannot help but greatly increase. For these reasons, this trend has the potential to drive substantial economic activity and cement emerging markets’ growing role on the global stage.