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Table of Contents

After 2022's Rough Ride, Will Emerging Markets Rebound in 2023?

Shanghai skyline at sunrise.


If you think U.S. equities had a rocky year, spare a thought for the developing world, where the benchmark MSCI Emerging Markets Index has lost 40% since its 2021 peak. Can the carnage be contained?

The answer depends on a host of knotty geopolitical issues on top of traditional metrics such as corporate earnings. Can China, which accounts for about a third of some EM indexes, rebound from pandemic restrictions and get growth back on track? Will the U.S. dollar keep rising, boosting import costs on commodity-dependent economies?  Will peace break out in Ukraine, putting Russia on a path to once again participate in global trade?

Chart of the year-to-date (Jan. 1, 2022 - Dec. 2, 2022) return of the MSCI Emerging Markets Index.

First, some promising data: EM companies have debt-to-equity ratios of just 1.5 times earnings, far lower than their developed-market peers. The MSCI EM Index trades at about 10 times forward earnings estimates, compared with 17 times for the S&P 500. In addition, a stronger dollar will help exporters of commodities, which are typically priced in dollars. Read on for more thumbnails of major EM markets.

“Valuations remain attractive vs. history and developed markets,” Lazard Asset Management wrote in a note to investors in October. “Profitability, free cash flow, and dividend yields have all moved higher, and earnings growth is expected to recover in 2023.”

Key Takeaways

  • Some analysts see attractively valued emerging markets rebounding in 2023 after a tough year full of geopolitical and economic uncertainty.
  • The Organisation for Economic Cooperation and Development (OECD) projects growth in China to accelerate as the government moderates COVID policies and embraces supportive fiscal policy.
  • Growth is expected to slow in India, but it is still on track to be the second-fastest growing economy in the G20.
  • Brazil and South Africa are expected to feel the pain of stabilizing commodities prices.
  • The Russian economy may continue to struggle under the weight of war in Ukraine.


  • Currency: Renminbi
  • Main Stock Benchmark: Shanghai Composite Index (SSE)
  • Economic growth 2022 (estimated): 3.3%
  • Economic growth 2023 (projected): 4.6%

China played a big role in the decline in value of EM assets this year, as it accounts for almost a third of the market capitalization of many emerging market indices. This means Beijing’s policies play an outsized role, and lately, those policies have been unkind to markets.

China's zero-COVID policy resulted in frequent lockdowns, often of entire cities on short notice, disrupting economic growth. Nationwide protests began spreading in November, adding to the uncertainty that investors dislike.

Add to that China’s crackdown on its foreign-investor darling tech stocks, and restrictions on homeowners’ ability to restructure debt amid a growing property crisis and the result is a mix that’s weighed on the nation’s once seemingly unstoppable economic growth trajectory.

The benchmark Shanghai Composite Index shed about 15% this year, falling from 3,600 in January to about 3,000 by late November.

That said, next year could be better.

Morgan Stanley said in a recent research note that China will probably shift policy priorities to focus on the economy—even predicting an end to zero-COVID by April 2023. A full re-opening would boost domestic consumption, which would go a long way toward helping the economy. Beijing also has more room to stimulate the economy, because it isn’t hampered by accelerating inflation elsewhere. The government poured some 1 trillion renminbi ($146 billion) of stimulus into the economy in the third quarter alone.

Chart of year-to-date (Jan. 1, 2022 - Dec. 2, 2022) U.S. Dollar to Chinese Yuan exchange rate.

China’s homebuyers also tend to be long-term owners, and thus less likely to sell than people who buy for investment, which would put further downward pressure on property prices. While it’s a different matter for China’s beleaguered property developers, Beijing has shown its willingness to bail them out.

All of that helps explain why the OECD raised its growth estimate for China to 4.6% next year from 3.3% in 2022.


  • Currency: Real
  • Main Stock Benchmark: Bolsa de Valores de São Paulo (BOVESPA)
  • Economic growth 2022 (estimated): 2.8%
  • Economic growth 2023 (projected): 1.2%

With pro-business president Jair Bolsonaro out of office, replaced by a more socialist Luis Inácio Lula da Silva, is now the right time to invest in Brazil?

Da Silva inherits a number of economic challenges that could force him to make some difficult choices. His predecessor, Bolsonaro, introduced fuel subsidies to ease the pain of rising prices following Russia’s invasion of Ukraine, along with numerous other spending measures. Maintaining this spending could imperil the value of the real, while eliminating them could slow the economy and cause a spike in inflation.

The bright spot: the rising price of commodities, among the nation’s main exports, helped produce estimated annual economic growth of 2.8% this year. The benchmark Bovespa is up 14% from its July 2022 low.

Da Silva’s economic policies point to a bigger role for the government in running and regulating the economy, using public banks to stimulate the economy, and slowing or stopping the privatization of state-owned industry. At the same time, concern about a global recession means commodities prices have started to cool, along with exports, one reason the OECD says growth will slow to just 1.2% next year.

Russian Federation

  • Currency: Ruble
  • Main Stock Benchmark: Indeks Mosbirzhi (MOEX)
  • Economic growth 2022 (estimated): (5.5%)
  • Economic growth 2023 (projected): (4.5%)

Russia effectively took itself out of the global economy when it invaded Ukraine in February 2022 and the West responded with far-reaching sanctions and an exodus of companies. In early November, the U.S. Department of Commerce designated Russia a “non-market economy,” citing what it said was “the rise of Russian state-influence in the economy.”

The massive diversion of resources to the war has taken an economic toll, with GDP expected to shrink in both 2022 and 2023.

Russian equities have also taken a beating. The benchmark MOEX index, which stood at 4,150 in October 2021, lost almost half its value by July 2022 and has remained largely flat since.

With Russian President Vladimir Putin showing no signs of relenting in his war against Ukraine, 2023 is likely to see little improvement for Russia’s beleaguered economy.


  • Currency: Rupee
  • Main Stock Benchmark: Stock Exchange Sensitive Index (Sensex)
  • Economic growth 2022 (estimated): 6.6%
  • Economic growth 2023 (projected): 5.7%

India’s economy, hit hard by the pandemic, rebounded fairly quickly: by the end of 2021, the economy was expanding by double digits. Growth stalled by mid-2022 as poor rainfall hurt the all-important agriculture sector. Consumers became more cautious about non-essential purchases as food and energy prices rose, further damping demand.

As India’s monthly energy and food import bill rose, the current account deficit widened in the July-September quarter to 2.9% of GDP—made worse by a weakening rupee, which makes imports more expensive in local currency terms. Headline inflation is running above the Reserve Bank of India’s 6% target, due mainly to higher food prices, which in India accounts for a larger share of the consumer price index calculation than in any other G20 country.

Despite the challenges, the OECD predicts India will be the second-fastest growing economy in the G20 in fiscal 2023 thanks to a narrowing current account deficit, likely decreased government spending, and easing imported inflation. The Sensex has climbed about 5% to about 63,000 in Dec. 2022 from just under 60,000 in Jan. 2022.

South Africa

  • Currency: Rand
  • Main Stock Benchmark: FTSE/JSE All Share Index
  • Economic growth 2022 (estimated): 1.7%
  • Economic growth 2023 (projected): 1.1%

South Africa’s economy returned to pre-pandemic growth levels in early 2022, driven largely by increased household consumption and greater demand for commodities exports. Then growth stalled as spring floods in the KwaZulu-Natal region shuttered factories and the nation’s aging fleet of coal-fired power plants led to extensive electricity outages that hurt mining, manufacturing, and even agriculture. Business confidence tanked.

The FTSE/JSE All Share Index, which started out the year at around 73,750, slid to about 14% to 65,000 in June, just after the floods.

Chart of the year-to-date (Jan. 1, 2022 - Dec. 2, 2022) change in the MSCI World Commodity Producers Index.

One upside was that coal exports to Europe rose in the wake of the war in Ukraine. Yet commodity prices are expected to ease in 2023. Against this backdrop, the OECD estimates 2022’s tepid 1.7% growth rate will slow to just 1.1% in 2023. 

Things could be worse: The OECD expects private consumption will rebound, and that private investment will increase as companies replace aging capital equipment. A planned split of the national power company that will allow new companies to enter the market could ease power outages. A rebound in international tourism would provide further relief.

Article Sources
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  2. Lazard Asset Management. "Outlook on Emerging Markets."

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  8. Organisation for Economic Co-operation and Development. "Brazil Economic Snapshot: Economic Forecast Summary (November 2022)."

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  17. Organisation for Economic Co-operation and Development. "South Africa Economic Snapshot: Economic Forecast Summary (November 2022)."

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