Emerging markets fall behind their developed-world counterparts

While developed-world markets look forward to a recovery, emerging market stocks have tumbled as foreign investors pull out cash.

The world is heading for a two-speed recovery, says Tom Rees in The Daily Telegraph. The world’s low and middle-income nations are “at the back of the queue for vaccines” and have little cash left to spare on fiscal stimulus. 

The International Monetary Fund projects that by 2024 GDP in emerging Asia (except China) will be nearly 8% lower than it would have been without Covid-19. Latin America is on course for a 6% shortfall and sub-Saharan African economies will still be 5% smaller than the pre-pandemic trend. By contrast, advanced economies will be only 1% smaller.

In recent decades “we have got used” to the idea that global economic growth is driven by emerging economies, writes David Smith in The Sunday Times. But the pandemic has “tilted” things “back in favour of the West”. 

The MSCI Emerging Markets (EM) index has tumbled by 8.5% since the middle of February. That is partly due to China: the withdrawal of stimulus has hit the country’s stockmarket, with the key CSI 300 down by 6% so far this year. Chinese shares make up more than a third of the MSCI EM index.

Foreign investors are pulling out cash, reports Anna Hirtenstein in The Wall Street Journal. Investors withdrew about $3bn from EM bonds in February and then again in March. South African, Indonesian and Indian debt have suffered the biggest reverses. Money managers also withdrew $670m from developing-country stocks in the same period. Rising bond yields in America mean investors now have less incentive to risk their capital in emerging markets, which are regarded as less stable than the developed world. 

Long Covid

The situation in Africa is especially concerning, says Philip Aldrick in The Times. While the continent has performed relatively well in terms of pandemic mortality, Africa faces “its own pernicious strain of long Covid-19; weak growth, unsustainable debt” and rising poverty. The World Bank says that 40 of the world’s 74 poorest nations “are at high risk of debt distress”. That number will only rise. 

A huge spike in Covid-19 in India threatens to sink its recovery, report Benjamin Parkin and Amy Kazmin the Financial Times. Infections have already topped last year’s peak. Hospitals in Mumbai and other big cities risk being overwhelmed. Politicians are bringing in localised restrictions, although there is little appetite for a repeat of last year’s strict national lockdown. 

The situation in India is now “a major cause for concern”, says a note from Gavekal Research. In Brazil a spiralling public health and political crisis risks turning into an economic one. “Domestic activity in much of the developing world will remain disrupted through the rest of 2021.”

Recommended

The best 0% balance-transfer credit cards
Credit cards

The best 0% balance-transfer credit cards

These 0% balance transfer credit cards offer some of the best deals on the market today.
26 May 2023
Where do we go from here?
Investments

Where do we go from here?

A new series of interviews from MoneyWeek
26 May 2023
Best savings accounts – May 2023
Savings

Best savings accounts – May 2023

Interest rates have been creeping up - we look at the best savings accounts on the market right now.
26 May 2023
The best one-year fixed savings accounts - May 2023
Savings

The best one-year fixed savings accounts - May 2023

You can now earn 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the latest rates available now.
26 May 2023

Most Popular

Nationwide to give £100 cash boost to customers
Personal finance

Nationwide to give £100 cash boost to customers

Nationwide Building Society is giving customers £100 as it reinvests profits. Dubbed the Nationwide Fairer Share scheme, we look at who is eligible.
22 May 2023
Share tips of the week – 26 May
Investments

Share tips of the week – 26 May

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
25 May 2023
The best one-year fixed savings accounts - May 2023
Savings

The best one-year fixed savings accounts - May 2023

You can now earn 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the latest rates available now.
26 May 2023