Emerging markets insights

Three things we’re thinking about today

1. Latin America: Markets in Latin America have been the best performer in emerging markets (EMs) year-to-date, driven by the rise in the energy sector, which has posted double-digit returns. Looking ahead, Luiz Inácio Lula da Silva’s successful run for a third term as president of Brazil, in combination with his party’s lack of control of either House of Congress, imply that there are checks and balances in place to act as fiscal constraint. Additionally, recent reforms imply the risk of a repeat of past interference in the management of government-controlled companies has diminished. We remain positive on the outlook for equity markets in Brazil and Latin America.

2. Earnings: EMs have witnessed a sharp reduction in 2022 consensus earnings forecasts, which have declined from 6% growth in January 2022 to -11% at the end of October. China has been the primary drag on earnings over this period, but resilient earnings growth in Brazil, Mexico and Indonesia has been a partial offset. Focusing on 2023, EM earnings growth is forecast to witness a modest rebound to 3%, based on consensus forecasts; however, a large portion of this is reliant on the recovery in Chinese earnings, which is far from assured.1

3. Interest ratesThe size of interest rate increases globally is starting to slow, with the Bank of Canada2 opting for a 50 basis points3 increase in October over its previous strategy of 75 basis point increases at prior meetings. Other central banks may follow this move in the coming months amidst signs that earlier rate increases are starting to filter through to the economy and as the pace of energy price increases starts to slow. This should have positive implications for future inflation and signals we are closer to the end than the start of the rate tightening cycle. While rates are expected to nonetheless continue rising, markets are a discounting mechanism and may start to focus on the timing of the peak in the rate tightening cycle given the increasing risks of a recession in 2023.

Read the report here >

Source: FactSet. There is no assurance that any estimate, forecast or projection will be realized.

Source: Bank of Canada, October 26, 2022. A basis point is 1/100th of a percentage point.


All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with investing in foreign securities, including risks associated with political and economic developments, trading practices, availability of information, limited markets and currency exchange rate fluctuations and policies; investments in emerging markets involve heightened risks related to the same factors. Investments in fast-growing industries like the technology and health care sectors (which have historically been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments. China may be subject to considerable degrees of economic, political and social instability. Investments in securities of Chinese issuers involve risks that are specific to China, including certain legal, regulatory, political and economic risks.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

Editor's Picks