Emerging Market Equities, Excluding China, Poised for Outperformance: Matt Orton

Emerging Markets Set to Shine

In a recent interview, Matt Orton, Chief Market Strategist at Carillon Tower Advisers, shared his optimistic outlook for emerging market equities, particularly those outside of China. Orton believes that these markets are poised for significant outperformance over the next three years, citing a combination of favorable valuations and strong growth potential 1

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The China Factor

Interestingly, Orton's bullish stance on emerging markets comes with a notable caveat: the exclusion of China. This perspective reflects growing concerns among investors about China's economic challenges and regulatory environment. Despite China's historical dominance in emerging market indices, Orton suggests that opportunities in other developing economies may offer more attractive prospects 1

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Valuation Advantages

One of the key drivers behind Orton's positive outlook is the current valuation of emerging market equities. He notes that these markets are trading at attractive levels compared to their developed market counterparts. This valuation gap presents a compelling opportunity for investors seeking potential long-term gains 2

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Growth Potential

Emerging markets, excluding China, are expected to demonstrate robust growth over the coming years. Orton points to several factors contributing to this potential, including demographic advantages, increasing domestic consumption, and ongoing economic reforms in many developing countries. These elements combine to create a favorable environment for corporate earnings growth and market expansion 2

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Investment Implications

For investors considering emerging market exposure, Orton's insights suggest a nuanced approach. While maintaining a positive stance on the broader emerging market category, he advocates for a selective strategy that potentially underweights or excludes Chinese equities. This approach aims to capitalize on the growth potential of other emerging economies while mitigating some of the risks associated with China's market 1

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Global Economic Context

Orton's forecast comes at a time of significant global economic uncertainty. Factors such as inflation concerns, geopolitical tensions, and the ongoing effects of the COVID-19 pandemic continue to influence market dynamics. However, Orton's outlook suggests that emerging markets may be well-positioned to navigate these challenges and potentially offer superior returns compared to developed markets 2

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Risks and Considerations

While the outlook for emerging market equities appears promising, investors should remain mindful of the inherent risks. These markets can be volatile and are often subject to currency fluctuations, political instability, and regulatory changes. Additionally, the exclusion of China from an emerging market strategy may result in a different risk-return profile compared to traditional emerging market indices 1

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