Three dangers troubling 60% of the world’s economy .. Emerging markets are threatened in 2020
12:03 - 21/12/2019
Information / follow-up ..
Despite the apparent signs that it is about to end the year 2019 strongly, many analysts point out that emerging markets face many risks, from the repercussions of the trade war, through slowing growth, and ending with the potential impact of the US elections on global markets.
In addition to these risks, there are problems, which face each country separately, such as the high pace of bankruptcy in the Chinese domestic bond market, slowing economic growth in India, and the severity of the electricity shortage crisis in South Africa.
Bloomberg News reports that there are several different perceptions about the outlook for emerging markets, which represent about 60 per cent of the global economy, which is reflected in the difference in the outlook for these markets. The Swiss banking group UBS believes that the higher assets Risks in emerging markets will post slight returns during 2020, while US investment banks Goldman Sachs and J.J. P. Morgan Chase, “a brighter picture of stock markets in developing countries over the next year, as Morgan Stanley sees emerging market bonds likely to rise over the next year.
According to the "German", the value of stock markets in the world increased throughout this year by about three trillion dollars, while fluctuations in currency rates fell to their lowest levels in five years, and differences between the yield on bonds fell to the lowest level in nearly three years.
HSBC Holdings, which was adopting an optimistic view of 2019 earlier, stresses that the next will be more difficult.
"With the progress towards 2020, conditions do not go in one direction for the currencies of emerging markets, so that they form a broad recovery case ... it will be another disappointing year," said Hong Kong analysts, including Paul McKill and Joe Wang, who live in Hong Kong.
As was the case this year, investors in emerging markets will follow how relations between the United States and China develop during the new year, with many doubts about the possibility that the "stage 1" agreement announced this month will lead to significant progress on the deeper problems between The two countries, such as the US dissatisfaction with the huge industrial support network that Beijing provides to Chinese companies.
Any indication of increased tension between the two countries would negatively affect financial assets in developing countries, not just the Chinese yuan.
Bank of America says, "The outcome of the US-China trade war is fundamental to the outlook for emerging markets in 2020."
Jerome Powell, president of the US Federal Reserve, revived emerging market assets last week when he alluded to the board's intention to halt the increase in US interest rates until at least 2021.
If this happens, the dollar will not rise, and it will ensure the continued flow of capital to emerging markets.
On the other hand, if inflation rates rise unexpectedly, the Reserve Board and the main central banks in the world may have to increase interest rates and reduce the difference in the yield on the bonds of developed and emerging countries, so investors get an additional return when they buy dollar bonds issued by emerging countries instead of US Treasury bonds.
According to JPMorgan data, US bonds fell to their lowest levels since April 2018, taking the difference in the yield on emerging country bonds and US bonds to less than 300 basis points this month.
The International Monetary Fund believes that emerging economies will achieve a growth rate of 4.6 per cent over the next year, or nearly three times the growth rate of developed economies, and slowing growth in China and India will harm emerging economies as a whole, according to estimates by the American "Citigroup".
"The potential growth rates for emerging markets are going down ... and this raises questions about asset prices, especially foreign currencies," said analysts David Lubin in London and Dirk Willer in New York. In contrast, Goldman Sachs expects that Brazil, Mexico, Russia, South Africa and other emerging countries will have room for movement in terms of easing monetary policy, at least in the short term, to boost growth, which is good news for emerging markets as a whole.
This will further boost corporate earnings, and the rising stock will help achieve a return on investment of 11 per cent in 2020, the American investment bank says.
Goldman Sachs analysts, including Andrew Tilton, indicate that "many central banks in emerging markets can cut rates again in the coming months, although the number of banks ready to cut will decline over time."
The phenomenon of seeking higher returns may continue during the next year, especially with the continued low interest in advanced economies, but the decline in the return on bonds in the local currency during the current year means the possibility of declining attractiveness of emerging markets for hot moving capital.
The average rate of return on domestic bonds in developing countries fell to 4.2 percent, the lowest level in more than ten years, according to "Bloomberg Barclays Indicators."
Despite this, French Societe Generale bank analysts say investors are still betting on hot money to invest in some of the more risky currencies.
And the primaries to choose the Democratic candidate to run in the US presidential elections scheduled for next November 3 could leave their impact on the global markets, where most analysts believe that it is still too early to say whether emerging market assets will benefit from re-election. Donald Trump for a second term, or from another candidate's victory.
Societe Generale analysts, including Jason Dow in Singapore, ask: “Will Trump's victory in a second presidential term, or a Democratic candidate’s victory in the presidency, be good or bad news for financial markets?” This question will remain open, but there will be an impact on economic policy or confidence Before and after the elections. ”End / 25