In Asia, the outlook has improved. There has been progress in much-anticipated tax reform in India, while the controversial president of the Philippines has indicated his desire to boost foreign investment and improve infrastructure. In China, too, the picture appears to be brightening.
In Latin America, conditions are more uncertain. Brazil has a new government after the impeachment of Dilma Rousseff, but the economy remains in recession and promised structural reforms may prove unpopular and difficult to implement. Mexico would be particularly vulnerable to any protectionist measures that President-Elect Donald Trump might implement, so investment is likely to continue to slow. Elsewhere in the region, there are early signs of improvement in Argentina. After painful but necessary reform, inflation is flowing and the IMF is forecasting a return to growth next year.
After a difficult period following the collapse of commodity prices, relative growth trends now favour emerging markets over their developed peers. Global economic recovery remains fragile and the political atmosphere in many countries appears to be turning towards protectionism and populism, which could threaten growth. Nonetheless, many developing markets retain key defences against recession, including the ability to cut interest rates and favourable demographic forces.
In the long term, McInroy & Wood believes that there are particularly attractive investment opportunities to be found in the emerging markets. This reflects our view that the centre of economic gravity is shifting away from the developed economies of the world towards the developing ones. The latter are benefiting from favourable trends in demographics, liberalisation, and capital and technology flows. The result has been a superior rate of economic growth in much of the developing world, and we expect this to result in rising profit growth and good stock market returns in the future.