Emerging economies find their feet

This year saw a return to normal for emerging markets. It’s a far cry from 2018, which brought misery for those betting on the world’s fastest-growing economies.

979-Bucharest-634

Romania: from pariah to darling in 2019

This year saw a return to normal for emerging markets. It's a far cry from 2018, which brought misery for those betting on the world's fastest-growing economies as the MSCI Emerging Markets index plunged into bear territory. In 2019, the index is up by 14%. That is satisfying but scarcely half of the gain seen in some developed markets. The index also remains down about 6% in US dollar terms since the start of 2018.

It has proven a turbulent year for many emerging economies. Continuing US-China trade tension was a formidable headwind for the export-dependent economies of emerging Asia, with South Korean exports down 14.3% in November on a year before. Civil unrest saw Hong Kong slip into recession and rocked many nations in Latin America, with the MSCI Chile index down about 16%. Emerging-market central banks responded by joining the global trend towards monetary easing. The Bank of Russia has delivered five consecutive interest-rate cuts through December, says Simon Kennedy on Bloomberg. In Turkey and Ukraine, central banks slashed rates by 2% earlier this month.

The top performers

Romania was another unloved country that came back into fashion, note Veronika Glyas and Irina Vilcu on Bloomberg. With a "new, market-friendly government at the helm", the country's stockmarket turned from "pariah to darling", returning more than 30% this year. Its stocks still look cheap.Russian stocks also enjoyed a banner year, with the country's stockmarket recording a 39% gain. The rebound in Russia is "more than a one-year phenomenon", says Sumit Roy on etf.com.

The iShares MSCI Russia ETF has now risen steadily since 2016, when the country's stocks "hit rock bottom on the back of sanctions by the West and an oil price crash". Russia is still among the world's cheapest markets, but that is because it brings numerous geopolitical and oil-price risks.China's CSI 300 delivered an impressive 35% return, a welcome comeback after investors endured a 27%crash in 2018. India's Nifty50 Index advanced 12%,while Indonesia's IDX composite stagnated, recording a 1.1% gain for the year. Finally, Brazilian stocks enjoyed a healthy 25% gain in a year in which the government finally passed landmark pension reforms.

The year ahead

Expect central banks to come to the rescue in 2020, says Capital Economics. Monetary easing will continue across major emerging economies. With the Asian electronics cycle and key commodity prices on the up, export growth is due for a rebound. Yet those hoping for a return to the early 2000s' period of rapid "catch-up" growth may be disappointed over the next decade. "The process of reform and market liberalisation has stalled in many large emerging markets." Investors will have to be picky and choose "well-placed and well-managed economies" if they want to do well in the 2020s. MoneyWeek favourites include India and Vietnam.

Recommended

The MoneyWeek Podcast with Russell Napier at the Library of Mistakes
Investment strategy

The MoneyWeek Podcast with Russell Napier at the Library of Mistakes

Merryn talks to Russell Napier about Edinburgh’s Library of Mistakes, the age of debt and financial repression, plus why he has never invested in Chin…
27 May 2022
What to buy as the tech-stock bull market crashes
Tech stocks

What to buy as the tech-stock bull market crashes

The decade-long bull market in tech stocks has come to a rapid halt. Investors need to distinguish solid stocks from speculative ones rather than just…
27 May 2022
Will the rise of ESG investing cause stagflation?
ESG investing

Will the rise of ESG investing cause stagflation?

ESG investing is booming. But it may be contributing to today’s stagflation – slower growth and higher inflation – says Tom Traill.
27 May 2022
What sardines can teach investors about today's markets
Investment strategy

What sardines can teach investors about today's markets

A California tale of “eating sardines” and “trading sardines” can help us divide investments into speculative and real, says Merryn Somerset Webb. Som…
26 May 2022

Most Popular

The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
The Federal Reserve wants markets to fall – here’s what that means for investors
Stockmarkets

The Federal Reserve wants markets to fall – here’s what that means for investors

The Federal Reserve’s primary mandate is to keep inflation down, and lower asset prices help with that. So, asks Dominic Frisby – just how low will st…
25 May 2022
Scottish Mortgage Investment Trust has fallen hard. But is now the time to buy?
Investment trusts

Scottish Mortgage Investment Trust has fallen hard. But is now the time to buy?

After a spectacular couple of decades, the Scottish Mortgage Investment Trust has fallen by almost 45% so far this year. Rupert Hargreaves asks if no…
26 May 2022