The prospects for emerging markets outside Asia remain uncertain in 2016 in the absence of any obvious catalysts that could trigger a rebound from a weak 2015. But the performance of these markets is expected to improve from their unimpressive showing last year, with Eastern Europe expected to outperform Latin America.

“It is very important to realize that all markets are different and do not move in the same direction at the same time,” says Mark Mobius, executive chairman of Franklin Templeton Investments Corp.’s emerging markets group in Singapore, “although there will be some events that affect all markets in the short term.”

Among the factors that will weigh on market performance to varying degrees are a range of economic conditions that tend to be a drag on economic growth: continued low commodity prices, weak consumer demand, high debt levels, political tensions and a rise in U.S. interest rates.

“The picture is not very optimistic for Latin America and Eastern Europe, but year-over-year growth is expected to look better,” says Matthew Strauss, vice president, portfolio management, and global strategist with CI Investments Inc. in Toronto.

Both Russia and Brazil, two of the largest emerging markets outside Asia, are in recession and experiencing political problems. In Russia, political tensions with Ukraine and associated sanctions remain an overhang, while fresh tensions with Turkey have the potential to escalate in 2016. Strauss believes, however, that Russia will fare better this year due to slowly recovering consumer demand and a turnaround for banks.

Christine Tan, senior portfolio manager with Excel Funds Management Ltd. in Mississauga, Ont., and portfolio manager of Excel Emerging Markets Fund, expects Russia’s inflation rate to drop next year, resulting in a cut in domestic interest rates.

Brazil, Tan says, is facing a perfect storm of economic headwinds exacerbated by a hiatus in political decision-making (Dilma Rousseff, Brazil’s president, survived an impeachment threat late in 2015, but will continue to struggle), a standstill in infrastructure spending, a weak fiscal balance sheet and considerable consumer debt.

But, Tan says, with very low valuations, “you do not need to see much of an improvement to realize an inflow of capital” to spur an increase in stock prices.

However, Strauss says, “It is hard to see where any upside trigger will come from.”

The low price of oil will continue to benefit countries that are net importers of oil, such as Turkey, Peru, Chile and the eastern European region. However, a low oil price will hurt exporting countries, such as Russia, Colombia, Brazil and Mexico.

Similarly, low base metals prices will hurt exporting nations, especially those in Latin America, such as Brazil, Colombia and Chile. Strauss does not see any signs of a rebound in those commodity prices in 2016.

Turkey is experiencing high inflation, which, Strauss says, is not expected to move lower.

Plus, says Tan, Turkey is vulnerable to the recent rise in U.S. interest rates because of a high current-account deficit.

Fortunately, the U.S. Federal Reserve Board is taking a gradual approach to raising interest rates, which will allow governments and companies that have borrowed in U.S. dollars over the past few years to adjust gradually to the changes. Mobius adds that an increase of up to 50 basis points in U.S. interest rates “has already been discounted in the market.”

Mobius remains optimistic about the longer term. He looks for investments that have been unfairly punished by the market downturn, including some commodity stocks as well as hardware and software technology firms.

Here’s a look at some companies that portfolio managers favour in two regions:

Latin America. “Mexico is the only country in Latin America with good potential from an investment perspective,” says Strauss, who adds that while that country is dependent upon oil, it will benefit from being linked to a strong U.S. economy.

Strauss likes the leading airport developer and operator Grupo Aeroportuario Centro Norte SAB de CV, which is experiencing significant growth in traffic. However, he expresses concerns that Aeroportuario Centro Norte’s valuation is becoming too high. Strauss’ CI Signature Emerging Markets Corporate Class Fund also holds shares in El Puerto de Liverpool SAB de CV, a mid- to high-end retailer that operates the largest chain of department stores in Mexico, as well as shares in retail giant Wal-Mart de Mexico SA de CV.

Tan’s portfolio, however, is underweighted in Mexico. She says that, although there are good opportunities, “valuations are not cheap.” Her portfolio holds shares in Gruma SAB de CV, a multinational food manufacturing company that produces popular staples such as corn flour and tortillas.

In Peru, Strauss favours Credicorp Ltd., the country’s largest financial services holding company, which, he says, is highly profitable and has valuations that are interesting, based on historical levels.

However, he is concerned about the impact of a potential devaluation of the currency, the nuevo sol, on Credicorp’s balance sheet as Peru’s central bank pushes to “dollarize” the currency.

Strauss adds that the El Niño ocean weather phenomenon – which is unusually large and warm and, therefore, carries fewer nutrients for marine life – is likely to have a negative impact on Peru’s fishing industry.

Eastern Europe. In this region, Strauss likes Komercní Banka AS, a major bank in the Czech Republic, which, he says, is experiencing “decent growth.”

Tan says a lot of banks in Eastern Europe still are working through the credit cycle and she will be looking to add to the Excel fund’s underweighted positions. That fund is invested in the Poland-based “cash and carry” retailer Eurocash SA’s shares, which, she says, is trading at an all-time high.

“Political decisions in Russia can go either way,” adds Strauss, and the CI fund has no exposure to that country.

However, Tan likes certain companies, including Sberbank, Russia’s largest bank; and Magnit PJSC, Russia’s largest retailer.

In Turkey, the Excel fund invests in profitable Hac Ömer Sabanc Holding AS, the country’s largest industrial and financial services conglomerate.

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