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Emerging Markets: December quarter shows positive signs after a challenging 2022

Here’s a quick review of Emerging Markets in 2022 from James Syme, Paul Wimborne and Ada Chan, co-managers of Pendal Global Emerging Markets Opportunities fund

IT was a difficult year for emerging equity markets in 2022, but the December quarter was more positive despite ongoing growth and inflation pressures in key economies.

Last year Russia’s invasion of Ukraine drove prices of key commodities sharply higher in an environment where inflation was already high and the outlook for interest rates was difficult.

This was combined with ongoing economic weakness in China.

The MSCI EM Index returned -20.1% in USD terms.

Here is a recap of the main EM themes in 2022 and what we learned in the closing months of the year.


In Russia, the equity market in Moscow closed in February 2022 and did not re-open in a meaningful sense.

With foreigners banned from selling, capital controls imposed and tight financial sanctions on the country, it became impossible for foreign investors to recover money from Russian equities.

The impact of wide economic and trade sanctions mean the fundamental value of Russian equities is highly uncertain.

GDRs and ADRs of Russian stocks have been suspended. MSCI deleted the Russia index from MSCI EM in March with a zero valuation.

Growth countries

Despite rising global interest rates and bond yields, growth surprised to the upside in several traditionally high-beta, current account economies.

James Syme, Paul Wimborne and Ada Chan (l-r) … fund managers for Pendal Global Emerging Markets Opportunities fund

Brazil, Indonesia, India and Mexico were among the better-performing major emerging markets in 2022.

MSCI country index returns were +14.2% in Brazil, + 3.6% in Indonesia, -2% in Mexico and
-8% in India (in USD terms).

Brazil and Mexico benefited from strong exports, while central bank currency support allowed domestic demand growth in India and Indonesia.

Meanwhile, higher energy prices, a sharp slowdown in global technology spending and a worse outlook for global growth meant that Korea and Taiwan both underperformed. MSCI country indices returned -29.4% and -29.8% respectively (in USD terms).


Despite improving credit and monetary aggregates data, the Chinese economy remained weak in 2022 as policymakers prepared to stimulate.

The key causes of the weakness were the ongoing policy-driven slowdown in the real estate sector and the impact of Covid lockdowns.

In the final quarter of the year — facing street protests and mounting evidence of the negative economic effect of lockdowns — Chinese authorities began a controlled re-opening of the economy.

MSCI China returned -21.9% in USD terms in 2022, but Chinese markets finished the year with a rising index and a sense of optimism.


During the year we maintained our overweight exposure to markets with strong fundamentals in trade balances and growth — including Brazil and Mexico — and moved from significantly underweight China to a neutral position.

We allocated to Indonesia, seeking exposure to the financial and consumer sectors.

Allocations to Indonesia and China were made by moving underweight Korea in response to slowing growth there.

We remain overweight India, encouraged by strong corporate and economic results but we are keeping an eye on macro-economic fundamentals.

We continue to have a broad preference for the equity markets of economies that have strong terms of trade and robust trade balances compared to history.

Find out about

Pendal Global Emerging Markets Opportunities Fund

We continue to see upside to domestic demand and credit growth and believe that weaker global growth will have a limited impact.

Our preferred markets remain Mexico, Brazil, India, Indonesia and the UAE.

In China we recognise the improved outlook but are waiting to see follow-through from growth and earnings expectations.

Positive signs in December quarter

The fourth quarter of 2022 was more positive for emerging and global equity markets, despite ongoing growth and inflation pressures in key economies.

October was difficult, but a shift to a more growth-friendly set of policies in China — and a sense that the outlook for US monetary policy is more positive — led to a stronger finish to the year.

In the quarter MSCI EM Index returned +9.7% in USD terms.

China’s economy remained weak despite increasingly aggressive credit and monetary stimulus.

But markets focused on the more positive change in policymaker intentions. MSCI China returned +13.5%  in the quarter (USD terms).

The outlook for US monetary policy also improved in the quarter.

Although we saw interest rate hikes by the Federal Reserve, US CPI continued to trend lower in October and November.

In early November the US ten-year bond yield moved below policy interest rates.

This proved supportive for some emerging markets that had previously been held back by capital outflows.

Which countries are well placed

In the December quarter we saw strong MSCI index USD returns in Colombia (+19.7%), South Africa (+18.3%) and Peru (+17.4%).

Previous winners, especially those with high commodity exposure, generally underperformed in the quarter with softer commodity prices through the middle of the period and reallocation of investment flows towards China.

MSCI Brazil returned + 2.4% and MSCI Indonesia -3.6% (both USD terms).

The weaker oil price hit the Arab Gulf markets harder with MSCI Saudi Arabia returning -7.6%. UAE and Qatar also had negative returns.

In the quarter we maintained our overweight exposure to markets with strong fundamentals in trade balances and growth and moved from significantly underweight China to a neutral position.

The allocation to China was made by moving underweight Korea and by trimming the overweight positions in Mexico and Brazil.

We further increased our weighting in Indonesia, adding another consumer stock.

We remain overweight India, encouraged by strong corporate and economic results but keep an eye on macro-economic fundamentals.

About Pendal Global Emerging Markets Opportunities Fund

James Syme, Paul Wimborne and Ada Chan are co-managers of Pendal’s Global Emerging Markets Opportunities Fund.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund here
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager here

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at January 19, 2023. PFSL is the responsible entity and issuer of units in the Pendal Global Emerging Markets Opportunities Fund (Fund) ARSN: 159 605 811. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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