I’m fortunate to be able to work with an outstanding team at Templeton Emerging Markets Group, which includes individuals with diverse backgrounds and areas of expertise. My colleague Carlos Hardenberg is a key member of our team and brings a wealth of experience as a research analyst, portfolio manager and world traveler who has lived in several different countries. I thought I’d invite Carlos to share his perspective on the opportunities and challenges he sees in emerging markets today and as we head into 2017.

A cloud of skepticism still appears to be hanging over emerging markets, but we think it’s now time to focus on fundamental economic realities. Short-term market volatility aside, over the last couple of months we’ve seen significant improvements across the majority of metrics that we measure in emerging markets, including sentiment.

In a number of emerging-market countries in both Latin America and Asia, we see economic activity that is still far below potential, but there have been signs on both the manufacturing and consumer sides that sentiment is improving. This is especially true in countries in Asia that have adopted reform processes, such as Indonesia and India. In India, in particular, we think that recent developments undertaken by the Narendra Modi-led government have shown it is really willing and able to implement reforms.

Reforms appear to be on the agenda for China too, although in our view China is very good at making eye-catching announcements but perhaps not as good at delivering on the execution of all of its plans, notably in the field of privatization and other public sector reforms.

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Commodity Pricing Has Supported Improving Export Levels

There is now clear evidence that export levels have been generally improving in emerging markets. Many countries have benefited to a great extent from commodity prices, which have been at more reasonable levels than in the past. Certainly, lower commodity prices are hurting businesses running a high-cost-base operation, but they have benefited those markets that are investing in infrastructure, especially the big consumer markets purchasing cheaper commodities. Lower commodity prices also have translated directly into better current account balances for almost all emerging markets.