Never has social media had such an impact on global markets than in the past three years and in particular, one man’s use of twitter. For many, it is hard to comprehend a simple posting of 280 characters can have such a profound effect on global stock markets and yet a tweet or series of tweets, truth or fabrication, can send markets into a spin. 
Whilst close to home the vast majority are concerned with Brexit and the recent arrival of Boris Johnson as our new prime minister, the bigger broader concern globally is the ongoing ‘tit for tat’ trade war spat between the US and China. The question therefore is where do investors find solace amongst all the uncertainty?
The US-China trade war has rumbled on for well over a year now, with retaliatory rhetoric and tariffs being imposed and threatened every month or so on various goods. In May, as trade negotiators failed to reach a deal, US president Donald Trump announced increases in tariffs on $250bn of Chinese goods and markets reacted badly with the Shanghai Composite index falling as much as 6 per cent. Last week, another quick-fire tweet announcing a further round of 10 per cent tariffs on $300bn of Chinese goods caught investors and markets cold, pushing Wall Street south to what, at the time, was the worst day of the year. That has now been superseded by concerns the trade war has spilt over into the currency markets, with president Trump implying China was manipulating its currency.
With no expectation of any deal being reached before the 2020 US election and lines being drawn on both sides’, investors are bracing themselves for increased volatility ahead. The more entrenched both sides get, the greater the pressure being applied to already slowing global growth. All of the rhetoric aside, equity markets in both the US and China remain up for the year to date, suggesting investors still believe a deal will be reached. If investors are wrong, then we are likely to have seen tariffs expanded to cover all US-China trade along with arguments intensifying around currency manipulation, all of which will lead to an inevitable hit on markets and cause global GDP to take a sizeable hit.
The ongoing trade conflict between China and the US is not limited to the stock markets. It has also resulted in business confidence across the G7 falling to the lowest level in five years; sentiment among manufacturers has in particular been weak, with a number of the world’s biggest countries exhibiting Purchasing Managers Index (PMI) figures below 50, indicating a contraction. Moreover, this isn’t isolated to major global players; the collateral damage spreads worldwide as the graph below shows.
With such uncertainty investors could be forgiven for thinking investment opportunities are currently few and far between. All of that said there may be an opportunity in an area which has continued to be unloved for many years, the emerging markets. Many of the pressures that exacerbated the emerging market sell-off in late 2018 have abated somewhat since.
Emerging market valuations have risen since the start of the year although they still maintain a discount against developed markets. Overall, emerging market countries are exhibiting improving macroeconomic conditions, better corporate fundamentals, supported by more reasonable valuations, and a shift toward more prudent capital discipline from both companies and governments. When combined with the long-term advantage of rising populations, improving education and technology and consequently productivity, then the potential for significant value is added.
Despite all the merits for emerging markets and the potential for future growth, investors must remain cautious of the downside risks and the inherent differences between nations. An active and long-term approach to investing is therefore necessary as each country is very different in terms of risks and drivers.
From a longer-term perspective, it is worth considering a region such as India, though the past 12-18 months have been a struggle for investors, it has a growing share of global GDP. A significant amount of investment is necessary to support growth, with its large population and young demographic remaining a rich source of consumer demand. All eyes are currently on the second term of the prime minister Narendra Modi’s Bharatiya Janata party (BJP) and whether it can deliver on the significant market-focused reforms and policies it has alluded to.
Alternatively, investors may wish to take a more diversified approach and seek broad exposure to emerging market equities. This provides an opportunity to invest in countries where specific active management strategies relating to that country are lacking.
Whilst not for the faint-hearted, those prepared to stomach the risk and objectively look to the undoubted global changes ahead may just find an investment opportunity worth considering in emerging markets.
Andy Parsons is head of investments and product proposition at The Share Centre. The views expressed above are his own and should not be taken as investment advice.