Erste Asset Management

IMF and World Bank Annual Meeting, autumn 2021: emerging markets facing challenges

IMF and World Bank Annual Meeting, autumn 2021: emerging markets facing challenges
IMF and World Bank Annual Meeting, autumn 2021: emerging markets facing challenges
(c) unsplash
Share post:

As part of the IMF and World Bank annual autumn meeting, numerous (virtual) events were being held on the topic of emerging economies. Let us summarise the most important issues and findings for emerging markets investors.

The biggest risks perceived for the emerging markets are less of an idiosyncratic (i.e. individual) and, not surprisingly, more of a global nature. Above all, the normalisation of the monetary policy, driven to a large degree by the US central bank Fed, will affect the emerging financial markets. This goes in tandem with worries about inflation and the interest rate hikes that have already started. It is followed by the global energy crisis, the so-called commodity super-cycle, and concerns about economic growth, which are largely derived from the reorientation of the Chinese economic policy.

Change of course in China’s economic policy

The change of course in China’s economic policy along the lines of the Common Prosperity maxim is expected to cause economic growth in China to slow down possibly below +5% per year in the coming two to three years. The participants at the annual meeting expect the Communist Party to intervene more prominently again in the politico-economic arena. The Party has already announced stronger fiscal stimuli. So far, however, nothing specific has materialised. The goal is to double GDP per capita in the coming 15 years. We are yet to see relations between the USA and China improve. Instead, we do notice a solid degree of scepticism across the aisle in the USA, even after Trump. That being said, the attitude of investors vis-à-vis China is generally positive.

Global interest rate hikes make refinancing harder for emerging economies

Global interest rate hikes make refinancing harder for emerging economies. The covid crisis has caused debt levels to rise in most emerging economies, but the absolute numbers are below industrialised levels. The level is considered administrable and not problematic to the system. Moratoria of payments by states and companies are not regarded as immediate risk. At the meeting, almost all emerging economies presented programmes aimed at cutting their debt. At the moment though, only oil-exporting countries have wiggle room for tax incentives. As for monetary measures, many emerging economies are ahead of the developed economies and have already started their cycle of interest rate increases. For example, the Russian central bank reacted to the high rate of inflation by raising its interest rates by an unexpectedly substantial degree in October.

Successful refinancing on the local market

Emerging economies can – and do at increasing rates – successfully resort to local capital markets for refinancing. Real interest rates remain negative especially in Latin America.

The frontier markets, a new segment of emerging markets, seem largely over-invested. Those are relatively small, less liquid markets. In this segment, investing has to be done very selectively. Here, energy exporters have a more interesting risk profile.

Left populism in Latin America

In Latin America, we can see a tendency towards left populism, as substantiated by the recent presidential elections in Peru, Ecuador, and Nicaragua. The imminent elections in Columbia and Chile are also likely to swing left. To be fair, the aforementioned countries have/had been run by weak governments with insufficient representation in their respective parliaments, which are strongly fragmented. This results in a lack of leadership on the one hand, and in a reduced risk of traumatically unorthodox economic policies on the other hand.

Unfortunately, the G20 common framework (i.e. debt reduction programme for the poorest debtors) has remained rather without bite so far. Here, there is a clear need for acceptance and technical understanding. In an investor survey, all emerging markets asset categories were considered under-invested. From a technical perspective, this aspect should be an advantage.

Legal note:

Prognoses are no reliable indicator for future performance.


Legal disclaimer

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to § 21 AIFMG, and the Key Information Document can be viewed in their latest versions at the web site within the section mandatory publications or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the web site A summary of investor rights is available in German and English on the website as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to § 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.

Leave a comment Required fields are marked with *

Your email address will not be published. Required fields are marked *