2020： Emerging markets recover, and China has more advantages.
In 2020, under the pressure of low interest rates and asset shortage in developed economies, international capital will enter emerging markets to seek high returns, thus enhancing its imagination of bottoming out in emerging markets.
In the past year, due to geopolitical uncertainty, intensified global trade friction, poor global economic growth and structural problems, the economic growth rate of emerging economies fell to the lowest point since 2009.
However, according to the International Monetary Fund (IMF), emerging markets and frontier markets account for about 59% of global GDP, and by 2024, this proportion is expected to rise to 63.3%. Emerging markets still have a lot of room for growth.
Ian Golding, former vice president of the World Bank, also said that the growth of emerging markets has always been the key to supporting the global economy. Looking forward to 2020, what are the prospects of emerging markets? Which emerging economies will perform better? Which assets will benefit from this? In this regard, the reporter of International Finance News interviewed experts from many financial institutions.
Recovery comes with risks.
In order to boost the economy, central banks in emerging economies have generally adopted interest rate cuts in 2019. The Bank of India has cut interest rates five times since 2019, reducing the interest rate to 5.15%. The Russian central bank lowered the benchmark interest rate to 6.25% five times during the year.
In the latest World Economic Outlook, the IMF said that the economic growth rate of emerging markets and developing economies is expected to pick up, rising from 3.9% in 2019 to 4.6% in 2020.
"With the improvement of the global trade environment in the fourth quarter of 2019, the new progress in Britain’s Brexit, the interest rate cut by the Federal Reserve, and the possibility of relative income during the US election in 2020, this has given the global market a rare time window." Liu Min, China market analyst of FXTM Futuo, told the reporter of International Finance News that because the Federal Reserve hinted that the threshold for raising interest rates in the future is high, other developed economies are mainly adopting loose monetary policies at present. With abundant funds and temporarily reduced uncertainty, the profit-seeking instinct of funds will appear, which will probably usher in some opportunities for emerging economies with relatively rapid GDP growth in 2020.
Zhao Yaoting, global market strategist for Jing Shun Asia-Pacific region (excluding Japan), said that emerging markets in Asia are expected to achieve about 6.2% economic growth in 2020, led by Indonesian and Vietnamese performances. These two countries benefited from the supply chain disruption caused by the trade war.
Teera Chanpongsang, Fidelity International Fund Manager, told the reporter of International Finance News that it is expected that the Indian and Indonesian governments will continue to promote domestic reforms, which will promote the long-term economic growth in Asia. Asian central banks will continue to maintain growth through fiscal incentives and monetary easing. In addition, China will continue to lead the development of Asia, mainly in e-commerce consumption and consumption upgrading.
Although many institutions are optimistic about the recovery of emerging markets at present, Cheng Shi, chief economist and managing director of ICBC International, said in an interview with the reporter of International Finance News that in 2020, emerging markets will still be in the long process of crossing the historical turning point, and the growth rate is expected to continue to fall near the low level of the ten-year cycle, so it is difficult to see a sustained and strong growth rebound on the whole. Looking forward to 2020, there are three historical turning points on the road of recovery in emerging markets: "First, the main engine has entered a weak period. While China’s economy insists on "slowing down and improving quality", the Indian economy still lacks the steady power to take over, and the weakness of "BRICS" will curb the rebound of emerging markets; Second, the main mode hit the ceiling. As the debt cycle enters the second half, the debt-driven growth that emerging markets rely on is unsustainable, while the narrow policy space and rising populist risks are increasing the threat of debt deflation. Third, the old dividend has become a new weakness. As an external pillar of emerging markets, economic globalization is easy to retreat and difficult to advance, and emerging markets will face multiple risk shocks. "
Huang Jun, a Chinese analyst at Jiasheng, warned, "In 2019, the slowdown of economic growth in emerging economies made domestic contradictions prominent, and mass activities appeared in many countries around the world to varying degrees. Such as India, Iran, Brazil and Venezuela. If the economic growth rate still slows down in 2020, we should pay attention to the possibility of group activities in many emerging economies, which will further drag down economic growth. "
In addition, Huang Jun told the reporter of International Finance News that the main problem of the current economy is that in this economic cycle, the effectiveness of fiscal policy is greater than that of monetary policy, and making a fuss about the demand side can better hit the point of the current economic weakness. At this stage, although all emerging economies hope to revive their economies, which emerging economy is easier to introduce fiscal policy in practice will have more advantages.
Beat developed markets
At present, most institutions in the industry are optimistic about emerging markets in 2020, and think that the present is the most worthwhile opportunity to enter the market. CICC said that after continuously underperforming developed markets in 2018 -2019, due to the gradual recovery of the global growth cycle and the possible depreciation of the US dollar, investment in emerging markets is expected to outperform developed markets in 2020.
UBS said that in view of the falling interest rate of the US dollar, emerging markets are expected to attract capital inflows in 2020, and investors’ pursuit of income may benefit some emerging market currencies. Investors will favor the currencies of countries with economic growth, investment expansion, productivity improvement and fiscal stimulus policies.
Goldman Sachs also said that emerging markets will achieve positive returns in 2020, on the grounds that sustained monetary easing, low oil prices and a better growth environment in the United States and the euro zone in the coming year will accelerate the economic growth of emerging markets.
Bank of America Merrill Lynch believes that in Asia, with the recovery of international trade, the currencies of emerging market economies in Southeast Asia are expected to continue to strengthen.
Teera Chanpongsang told the reporter of International Finance that he is more optimistic about stock assets in emerging markets. He said, "We prefer those companies that benefit from the steady growth of e-commerce consumption, the rise of the middle class and the upgrading of consumption, and at the same time value the experience of enterprise management teams and prefer those that can benefit from structural growth."
Liu Min said that emerging economies with relatively free interest rates, active fiscal policies and trade surpluses are worthy of attention. Among them, emerging Asian countries and their high growth and trade surplus have become a more prominent category. There are better opportunities in Latin America, and opportunities in Latin America may not be as common as those in East Asia. In 2019, Thailand became one of the few emerging countries where its currency greatly appreciated against the US dollar. With the improvement of the global trade environment, we can continue to pay attention to this country in 2020. In addition, Viet Nam also has great advantages in undertaking China’s industrial transfer. China’s economy is huge, and the opportunities will increase relatively. In addition, the financial opening has a good attraction for foreign investment.
Huang Jun believes that the investment theme in 2020 is hedging, followed by the pursuit of relatively high returns. "In the economic downturn, emerging economies need to maintain political and economic stability first. If there is domestic instability, there will be capital outflow. Because most developing countries have higher bond yields than developed countries such as Europe and America, they have a comparative advantage in yield, and investors will favor bonds. On the other hand, it is high-quality assets, and the important indicators for measuring high-quality assets are safety, liquidity and yield. "
Optimistic about the China market
Most analysts said in interviews that among all emerging market countries, they are more optimistic about the China market. Huang Jun said that there are three aspects to be optimistic about China: first, the domestic situation is stable; Secondly, compared with the major economies in the world, China’s debt accounts for a small proportion of GDP, and China has the ability to introduce fiscal policies; In addition, the national policy leads to new economic growth points, and China’s efforts in the fields of 5G and artificial intelligence are aimed at actively creating new social demands and welcoming the new economic cycle more quickly. These fields are worth looking forward to.
Cheng Shi said that in 2020, under the pressure of low interest rates and asset shortage in developed economies, international capital will be forced to seek high returns from emerging markets, thus enhancing its imagination of bottoming out in emerging markets. However, once this expectation seriously deviates from the weak growth of emerging markets, the iron facts will eventually shatter the golden fantasy. Fast forward and fast out of capital will touch the debt risk and exchange rate risk, and the roles of "honey" and "arsenic" will switch more frequently. "Under the threat of expected reversal,’ steady low growth’ is more valuable than’ fragile high growth’. From the perspectives of debt risk, exchange rate risk and populist risk, compared with other emerging markets such as India, Central and Eastern Europe and Latin China,’s economy of’ slowing down and improving quality’ still has high stability, which is expected to gain a comparative advantage. ".
Zhao Yaoting told the reporter of International Finance News that as China’s economy continues to transform into a consumption-oriented and service-oriented economy, its economic fundamentals remain sound. China’s real estate market will remain active, and it is possible to achieve steady investment growth, which will benefit China’s economy. On January 1st, the People’s Bank of China announced that it would reduce the deposit reserve ratio by 50 basis points, reflecting that the People’s Bank of China will continue to implement loose monetary policy to support the economy. In addition, China and the United States have reached an agreement on the text of the first stage economic and trade agreement, which will further reduce the uncertainty of the market and boost the market atmosphere. "We expect that, in view of the positive reaction of investors to the two catalysts of RRR cut and the signing of the first-stage trade agreement, the China stock market will usher in a wave of upward momentum in the short term".
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