- 2018-09-20
The emerging world rises again
In the economic turmoil of the previous few years, large emerging markets such as Brazil, Russia, and Nigeria fell into recession, and China, the largest emerging market, also triggered fears of a "hard landing". Today, economic growth can be seen almost everywhere in the entire emerging world.
According to a report by Morgan Stanley, it expects that the global economy will accelerate in 2018, and emerging markets will become a key driving force. Chetan Ahya, co-head of the Global Economics Department and Chief Asia Economist at Morgan Stanley in Hong Kong, stated in the report that the role of emerging markets other than China in driving the global economic cycle should not be underestimated. China’s emerging market economy is currently not included. The total accounts for 41% of global GDP and 24% in US dollars. He also pointed out that the top investment choices before the middle of the year include South African Rand, Brazilian Real, Polish Zloty and Russian Ruble.
The question is, will this continue?
Investors seem to think it will continue. After a five-year bear market, the MSCI Emerging Market Index has grown by 75% since the beginning of 2016, far exceeding the 50% increase in developed market stocks over the same period.
Macroeconomic data seems to justify this optimistic view. According to World Bank forecasts, the growth rate of developed economies as a whole will drop from 2.3% last year to 2.2% in 2018, while the growth rate of emerging and developing economies will increase from 4.3% last year to 4.5%.
However, many analysts warn that the prospects for the emerging world are by no means all that bright.
Neil Schilling, chief emerging market economist at Capital International Macroeconomics Consulting in the United Kingdom, said: "In the short term, these data are very good, so it is difficult to insist that the growth rate of emerging markets will drop sharply in the first quarter." But he The warning said: "The economic downturn will start sooner than many people expected." In fact, Capital Investment expects a recession this year, and the growth rate of emerging markets as a whole will drop from 4.4% last year to 4.2%. It will drop to 4% next year.
Schilling believes that the recent simultaneous growth of emerging markets has attracted people's attention and made people ignore the fact that they are still very different. Countries like Brazil and Russia are now in the early stages of the economic cycle, while small countries in Central and Eastern Europe have gone far. China’s growth has slowed because the government is unwilling to adopt fiscal stimulus policies in an effort to cool the country’s overheated real estate market.
Schilling pointed out that although growth may be widespread, it is not particularly strong. Capital Economics estimates that emerging markets will contribute about 2.5 percentage points to global growth of 3.4% this year, which is an increase compared with recent years, but is significantly lower than the 4 percentage points contributed to global growth of 5% in 2010.
The same is true for trade data. Although exciting in the short term, there are also concerns. Adam Slater, chief economist of Oxford Economic Consultancy, said that the positive aspect is that the emerging world, which even dragged down the growth of global trade in 2015, now accounts for more than half of global trade. One reason is that the rebound in commodity prices in the past two years has improved the terms of trade of commodity exporting countries, allowing them to import capital goods from developed countries at cheaper prices to improve infrastructure and increase productivity.
However, Slater agrees with Schilling that although trade and growth improvement is common at present, it does not mean that there has been a lasting change in direction. He said: "I think the structure has not changed. It is basically a cyclical performance now."
In fact, the Oxford Economic Advisory Service believes that global trade growth is in a structural recession. One potential reason is that the progress of globalization is at a standstill: the growth of the global supply chain may have reached its limit, and may even be reversed. Although this is bad for trade, it is not necessarily bad for economic activity.
Slater said one of the more harmful underlying reasons for the slowdown in trade growth is the quietly rising protectionism. He said that it is impossible to estimate the impact of each cause.
Simon Evernet, a professor of international trade at the University of St. Gallen in Switzerland, said that import barriers are by no means the only factor that endangers trade and economic growth. He pointed out that the practice of implementing export subsidies is increasing, especially in emerging markets.
How long can the world continue to rely on emerging markets as a growth driver? People's worries on this also have demographic reasons. Slater pointed out that 15 years ago, the labor force growth rate in the emerging world was about 2%, but now it has slowed to less than 1%. The Oxford Economic Consulting Service predicts that this growth rate will drop to zero by 2025 and turn into negative growth in another ten years. Emerging markets will no longer be able to compensate for the decline in labor growth in the developed world.
Rise in emerging markets still exists
Although the triple weakness of emerging markets-high valuations (especially the debt market), the threat of a tightening of the global financial situation caused by the Federal Reserve, and the risk of a significant slowdown in China's economic growth-undoubtedly added to the sharp adjustment of asset prices in 2018 of.
According to the report, this is almost certainly an exaggeration given the extent to which emerging markets have benefited from the ultra-loose monetary policies of major central banks. However, it is no exaggeration that investors are fiercely "grabbing gains" when the yield of about 20% of the world's sovereign bonds is negative. To be sure, the demand for high-yield emerging market assets is still great.
Although the Fed’s further tightening of policies and China’s crackdown on shadow banking are a source of growing market tensions, they are unlikely to cause investor panic, largely because the central banks of both countries are afraid of hindering economic growth. All this shows that investors in emerging markets will continue to waver, but they will not be disturbed. The return on investment in 2018 will not even reach half of this year's, but the rising trend of developing economies will remain.