LONDON (Reuters) – Many investors are optimistic about the possibility of some losses in 2023, but many believe that more governments will default in 2023 and the currency will weaken. It’s been a rough 12 months for emerging markets, with stocks and bonds alike suffering double-digit losses. feel safe.
Below are the events, trends, and topics that investors expect to shape their outlook for emerging markets in the coming year.
1/ High interest rates, low growth
A slowdown in the pace of rate hikes in the US and other major economies could lay the groundwork for an emerging market recovery in 2023, with a weaker dollar and lower inflation providing much-needed relief.
Developing economies are expected to persist in their growth gap with developed economies, but recession fears in the US and Europe are casting a dark cloud over global markets, especially in the first half of the year.
“A recession associated with aggressive monetary tightening and geopolitical and commodity shocks would be a temporary blow to financial and emerging markets,” said David Volketz-Landau, group chief economist at Deutsche Bank. rice field.
A lack of room for emerging market central banks to cut interest rates throughout the year could slow the recovery.
2/ Reopening China
China’s economy will struggle to reopen after COVID-19 lockdowns, but accounts for nearly one-fifth of global gross domestic product and is set to rise sharply as global growth slows is attractive.
Analysts expect a sharp recovery in consumption and investment in the world’s second largest economy after mid-2023.
“If you look at the current savings rate in China, it’s very high,” said Eric Zipp, head of emerging markets equities at DuPont Capital. I think that will give us a pretty big tailwind from an economic point of view.”
3/ War in Ukraine
Russia’s invasion of Ukraine has disrupted markets and the global economy. How the war unfolds in 2023, whether it is a continuation, an escalation, or a move toward resolution, can be equally important.
Globally, the war has changed energy markets and perceptions of inflationary pressures, food security and geopolitical risks. These factors are often felt more strongly in emerging economies. Emerging European countries are also feeling the humanitarian impact first-hand, from refugee movements to the Russian brain drain.
4/ Debt redemption
The list of countries in debt crisis is growing as a result of COVID-19 and the civil war in Ukraine. Zambia and Ethiopia are attempting to review their debt burdens under the G20 common framework. Sri Lanka and Ghana will default in 2022.
But a more complex creditor mix, including China’s rise as the world’s largest bilateral lender, has made the process slow and complicated compared to previous debt crisis episodes.
“It’s very difficult to get them all to sing the same song in the same key,” says Tim Samples, associate professor of law at Terry College of Business.
The number of countries shut out of capital markets in smaller, riskier economies has reached historic highs, but there may be some respite.
“There aren’t that many debts maturing next year,” said Carmen Altenkirch, emerging markets sovereign analyst at Aviva Investors. “Probably the most endangered country is Pakistan.”
5/ Brazil under LULA 2.0
With President-elect Luis Inacio Lula da Silva set to take office on January 1, markets are already looking for signals of a fiscal anchor to keep spending under control in Latin America’s largest economy.
Policy makers have highlighted inflation risks stemming from da Silva’s R$168 billion ($31.6 billion) spending proposal to deliver on his election promises.
“Investors are wondering whether Brazil’s debt to GDP is exploding or under upward pressure, whether it will hit 100% of its GDP anytime soon, or whether it will stabilize in the next couple of years. We want to know if we can,” Gordian said. He Kemen, Head of He EM Sovereign Strategy (West) at Standard He Chartered Bank, said:
6/ Turkish elections
President Tayyip Erdogan may face the biggest political challenge in his two decades in power as Turks head to the ballot box with the most high-profile votes in emerging markets.
The country grapples with a skyrocketing cost of living and a plummeting currency, with the lira recently declining to record lows against the dollar. Years of unconventional monetary policy have caused many investors to reduce their exposure to the state’s assets. A change in leadership can mark a stellar turnaround.
David Hauner, Head of EM Cross-Asset Strategy & Economics, EMEA, Bank of America Global Research, said:
7/ Vote
Many other emerging market countries face elections. Voters in Nigeria, Africa’s most populous country, will choose his next president in February, but incumbent Muhammadu Buhari will be absent due to term limits.
In Latin America, Argentina will hold presidential elections in October. Her two-time president and vice president Cristina Fernandez de Kirchner said in a popular vote, “Which one?” after an Argentine court sentenced her to six years in prison in a high-profile corruption case. I will not run for the nomination,” he said.
In Poland, elections scheduled for the fall could see voters oust the country’s ruling nationalist Party of Law and Justice (PiS), re-establishing tensions between Warsaw and the EU. there is.
($1 = 5.3109 reais)
Reported by Karin Strohecher and Jorgelina do Rosario, with additional report by Rodrigo Campos. Editing by Emelia Sithole-Matarise
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