Last year was tough for emerging markets as currencies and equity investment classes struggled to maintain investment options in the western world, resulting in the question: should?emerging market (EM) assets make the cut for just about any portfolio in 2019?
With a greater US dollar as well as the US Federal Reserve normalising rates, 2018 will likely be remembered when the year?the Indian rupee reached historic lows, the Argentinian peso fell 52% as well as Turkish lira shed 14% right away. There seemed to be the massive rand selloff too. For South Africa, the fiscal stimulus announced by President Cyril Ramaphosa only raised more questions on the stress it will boost economy’s fiscal space and ultimately the will impact rating agencies’ actions.
On the political front, populism has become the new norm, with right-wing rhetoric fast replacing patriotism. EMs have obtained to sit in the geopolitics who have evolved into a trade and aid skirmish between Washington and Beijing.
“In emerging markets, politics drives the economy,” says?Vestact?portfolio manager?Michael Treherne. “Within the developed world, the economy drives the politics. Geopolitics are normally a danger for EM markets. We’re optimistic that your US and China will resolve their issues, becoming a boost to global growth. Concerning EMs, i want to hope there won’t be any more politicians behaving impulsively.”
The financial predicaments in Argentina and Turkey raised the issue of whether more buffers happens to be constantly in place to counter the fiscal and monetary woes. Could structural safeguards have prevented the Turkish lira crisis? “The problems in both Argentina and Turkey were the politicians,” says Treherne. “I have no idea you can established buffers to counter poor policies.”
Contagion may spread, for the time being EM indices live in the crossfire of developed market policies. A worst-case scenario involving an escalation while in the Beijing-Washington trade war talk would decimate world markets, unlike the version about ten years ago when spillover risks were contained to the respective regions.
Last week, the International Monetary Fund further downgraded its 2019 growth forecast to three.5% with South Africa’s growth outlook surprisingly revised from 0.8% to one.4%. Consequently, upload and investment into major emerging markets is projected to get to at $1 trillion, according to the Institute for International Finance.
“I have witnessed several international money managers saying there’re increasingly taking a look at EMs being a position for investment
