Emerging markets: China is key
Jupiter Asset Management vice chairman, Edward Bonham Carter, believes the health of the Chinese economy remains key to Asia’s prosperity in the year ahead.
“There is certainly enough evidence to suggest that China is muddling through and working hard to manage its debt levels, even as the country’s trend growth rate slows,” he said. “Commodity prices such as oil are showing a bit of resilience, and that is due in part to sustained demand from China as it continues to expand.”
However, Bonham Carter says India, the region’s other big economic giant, is likely to see some short-term disruption from de-monetisation – the government’s decision to withdraw 500 and 1,000 rupee-denominated notes almost overnight and issue new ones.
But, he added: “The likely implementation of a Goods and Sales tax in April 2017, and the potential for lower interest rates in the next 12 months, should bode well for the country.”
For Schroders head of emerging market debt absolute return, Abdallah Guezour, there is good news and bad news when it comes to the outlook for EMs.
In terms of the bad news, he said the potential acceleration of the US Federal Reserve’s process of monetary policy normalisation could exacerbate the recent pressures on bond markets both in emerging markets (EM) and globally.
Meanwhile, China’s deteriorating growth trajectory and skyrocketing debt ratios are likely to remain a major source of concern. Within this context, he added, there is still a high risk that episodes of uncontained capital outflows from China could trigger intermittent dislocations in global financial markets.
The good news, however, is that Guezour believes a number of EM countries have become better equipped to face these challenges thanks to the macro-economic adjustments implemented over the last three years.
“These adjustments are now well-advanced in countries such as Brazil, Colombia, Russia, India, Indonesia and South Africa,” he said. “These countries have already experienced large currency devaluations, a completed tightening cycle and a renewed focus on reforms. As a result, the inflationary pressures and the large current account deficits that these countries suffered from during the period 2013 to 2015 are now under control.”
