Michael Hasenstab: An Update on our Global Markets Resilience Scores

Templeton Global Macro makes a compelling case that finding attractive opportunities in emerging markets lies in distinguishing the more resilient countries from the rest. Here, CIO Michael Hasenstab provides an update of the team’s proprietary “Local Markets Resiliency Index” and highlights the scores of seven different countries—Argentina, Brazil, India, Indonesia, Mexico, Malaysia and South Africa.

In June 2016, we released Global Macro Shifts1 (issue 5)—Emerging Markets: Mapping the Opportunities [GMS-5]. This paper discussed many of the risks and opportunities across emerging markets while highlighting the importance of assessing economic resiliencies in individual countries.

Since then, we have seen notable rallies in emerging economies as capital has returned to a number of undervalued markets, particularly during 2017. Those trends can continue, in our view, particularly in specific countries that have made strides in fortifying their economies against potential trade shocks, commodity price shocks and exchange rate shocks.

In GMS-5, we introduced our proprietary Local Markets Resilience Index (LMRI), which scores countries along five resilience factors. Given that macro conditions are in constant flux, we are continuously reviewing and updating our LMRI scores. In this research briefing, we provide an external update on our current and projected LMRI scores for 23 countries. We also provide a breakdown of the five factor scores along with brief analyst notes for five countries with high projected scores and two that have low projected scores.

Overall, we continue to have a positive outlook for a select set of emerging markets, but it’s important to recognize that there are significant variations across the asset class. Thus, it’s critical to sort the stronger, more resilient economies from the weaker, more vulnerable ones, in our view. The LMRI scores illustrate aspects of our research process that aim to identify those more resilient economies and the concomitant longer-term investment opportunities that they may provide.