Clouds gather over emerging markets

Emerging markets had a good 2016, says Andrew Van Sickle. But what does next year hold?

16-12-22-Mao-1200
Emerging markets led by China are forging ahead

Emerging markets had a good 2016. The MSCI Emerging Markets index outperformed developed-market stocks until November, and is now around 7% up for the year. China's recovery, which helped drive a commodities rebound, the easing recessions in Brazil and Russia and loose global monetary policy all bolstered sentiment. But emerging-market stocks "are unlikely to have it so easy" in 2017, says Capital Economics.

Trump's arrival is stoking concern over protectionism always a major headache for developing states because they depend more on trade than their industrialised counterparts. With Trump threatening to name China a "currency manipulator", geopolitical tension "will probably affect Asian markets already under pressure from rising US rates", note Roger Blitz and Elaine Moore in the Financial Times.

A higher yield on US assets draws capital away from emerging markets, a trend likely to accelerate if tightening happens faster than anticipated. China will be wary of racking up too much more debt, so it may withdraw some stimulus this year. Low valuations are bullish, however, and may help if political jitters settle. Russia could prove a bright spot given Trump's pro-Putin proclivities: he may soften Russian sanctions. Throw in the oil revival, says the FT's Eric Platt, and it's no wonder investors are already piling into Russian funds.

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Inflation looks likely to take off this year – but there’s one key risk
Inflation

Inflation looks likely to take off this year – but there’s one key risk

With the world’s governments spending money hand over fist, inflation looks certain to take off at some point. But China could change all that. John S…
19 Jan 2021
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021

Most Popular

Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021
Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021