Macroscope | Outlook for emerging markets rests on China’s ability to get a grip on Covid-19

Unsurprisingly, China’s Omicron wave has cut growth, dragging down emerging market stock values

Valuations, however, are a reflection of recent challenges rather than a sign of things to come, as China looks to ease monetary policy and step up its vaccination drive

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A man is seen with the Shanghai tower in the background, on March 29. The city hopes to see lockdowns end soon. Photo: EPA-EFE/

Published: 9:15am, 7 May 2022

Over the first four months of 2022, we have witnessed synchronised global monetary policy tightening, the start of the Russia-Ukraine conflict and a new Omicron wave in China, all of which have posed challenges to emerging market equities.

As a result, the MSCI Emerging Markets index fell by more than 12 per cent during this period. Much of the weakness was due to expectations of slower global growth as well as higher interest rates. A stronger US dollar amid an increasingly hawkish Federal Reserve also creates headwinds.

As the country with the largest weight in the index, China’s lacklustre performance has been a major drag on emerging market equities. China’s March activity data showed a broad-based slowdown in growth momentum amid the worst Covid-19 outbreak since early 2020. The disappointing April manufacturing trends point to a further slowdown due to tightened pandemic restrictions as Covid-19 cases remained relatively high.

The latest Omicron wave poses significant challenges to the Chinese economy, with lockdown measures weighing on production as well as consumption.

Travel restrictions across the country are causing logistics bottlenecks. Despite recent signs of improvement, road freight flows, which account for more than 70 per cent of overall freight traffic in China, fell by more than 25 per cent year on year in April.

Covid-19 policy will be key to China’s growth outlook. With China expected to maintain its zero-Covid policy in the near term, there is a risk of further lockdowns even after the current wave subsides, given Omicron’s high transmissibility.

Macroscope | Outlook for emerging markets rests on China’s ability to get a grip on Covid-19

Unsurprisingly, China’s Omicron wave has cut growth, dragging down emerging market stock values Valuations, however, are a reflection of recent challenges rather than a sign of things to come, as China looks to ease monetary policy and step up its vaccination drive

Unsurprisingly, China’s Omicron wave has cut growth, dragging down emerging market stock values

Valuations, however, are a reflection of recent challenges rather than a sign of things to come, as China looks to ease monetary policy and step up its vaccination drive