International Equities

Emerging markets are likely to lead the way

Bearish vs bullish : developed and emerging markets.

Global exports will likely slow but remain strong.

On a year-over-year basis, global exports for the five largest exporters in the world have slowed from their peak but remain strong. Supply chain disruptions, production backlogs, and port congestion will likely result in additional slowdowns in exports, but they should remain above pre-covid levels on the strength of global demand.

Year-over-year export growth by country

2013 ‑ current

This stacked bar chart shows the year over year growth in exports for China, the United States, Japan, South Korea and Germany on a monthy basis from January 2013 to February 28, 2021. After a period of negative export growth year over year for much of 2020, export growth has been very strong to start 2021.

Source: Manulife Investment Management, Bloomberg, as of March 31, 2021

Copper prices are indicating a slowing Chinese economy.

As China is the largest importer of copper, an increase in the price of copper is usually tied to an increase in demand from China. Due to its broad use throughout various industries, the price of copper is often seen as good indicator for the health of the Chinese economy. The recent slow down in year over year growth in the price of copper indicates a near term slowdown in the Chinese economy.

Chinese Imports vs Copper Prices YOY Change

2007–Current (with 6-month forward forecast)

This chart shows Economic growth projections for the United States, European Union area, Japan, United Kingdom, Canada, Emerging and developing Asia and China for 2019 and projections for 2020 and 2021. All categories are positive in 2020 with the highest growth in Emerging and Developing Asia. All growth was negative for 2020 with the execption of China, and with the United Kingdom and European Union area being the lowest. All projections are positive for 2021 and 2022 with Emerging and Developing Asia and China being the highest.

Source: Manulife Investment Management, Bloomberg, as of September 30, 2021

Despite short term headwinds, Asia equities may benefit from stronger economic growth.

In their July World Economic Outlook, the International Monetary Fund projects that many regions around the world, especially emerging and developing Asia, could grow faster than the U.S. in 2021 and 2022. The improving economic outlook should benefit all regions lead by the emerging markets.

Economic Growth Projections

Source: Manulife Investment Management, International Monetary Fund, as of July 2021

Longer-term fundamentals remain strong for Asia.

Asia is home to 60% of the world’s population, with China and India each accounting for about 18% of the global total. As incomes rise, the Asian middle class is expected to grow by about 1.2 billion people by 2030, significantly boosting consumption. A strong middle class provides a stable consumer base that drives stable economic growth.

The rise of the Asian middle class

—share of the global middle class by region (percent)

This double line chart shows the MSCI Emerging markets Index level compared to the US Dollar DXY Index from January 200 to March 31, 2021. The US Dollar Index on the right is inverted. The two data sets are negatively correlated. Thes two lines follow each other directionally up and down. Even though the USD index has risen recently so the line is down, we expect that to reverse course and be positive for emerging markets.

Source: Brookings Institution. Middle Class = household with incomes between $11–$200 per person/day (PPP) 2011 Manulife Investment Management’s sample strategy

This proportional bar chart shows a rough breakdown, in percentage terms, of a sample portfolio of Canadian, U.S. and international equities and fixed income, including a brief outlook discussion for each asset class.

Canadian equities

• Favour a selective approach to Canadian equities.

• Consider diversifying business risks, not just sectors.

US Equities

• Look for opportunities to take advantage of market dislocations.

• Consider dollar‑cost averaging into equities.

International developed market equities

• Consider less constrained strategies that can seek out opportunities wherever they may present themselves.

Emerging Market equities

Opportunities may exist within the emerging markets, specifically in the Asia ex‑Japan region.

Fixed Income
• Favour flexible strategies that can seize opportunities wherever they may be.

•Consider using different types of bonds for different objectives, whether it is downside protection or enhanced yield.

•Be mindful of the potential currency impact on global allocations.

Source: Manulife Investment Management as of December 31, 2020. For illustration purposes only. Performance histories are not indicative of future returns. The information in this document does not replace or supersede KYC (know your client) suitability, needs analysis or any other regulatory requirements. Clients should seek the advice of professionals before making any investment decisions.