Longer-term shifts can affect capital markets ahead of time
Jonathan Wheatley
Reports from Davos, where climate campaigner Greta Thunberg was a guest speaker, suggest US president Donald Trump’s assault on environmental 'alarmists' received a frostier reception than it would have done a couple of years ago © AFP via Getty Images
The virtual face-off between Greta Thunberg and Donald Trump in Davos this week caught the spirit of the times: on the one hand, a call to action to avert the world’s impending climate catastrophe; and on the other, a dismissal of evidence and an exhortation to optimism. Their audiences, meanwhile, faced the more pressing concern of restoring growth and confidence to a flagging global economy.
Emerging market investors are in a similar position. Now that the immediate threats of the US-China trade war have been eased by last week’s “phase one” agreement, they should really be turning their attention to the coming drawn-out battle for hegemony between the world’s two largest economies, and to other long-term risks.
Unsurprisingly, though, many are worried about how to keep last year’s rally going in an environment of slowing global growth. This is pushing many investors into unfamiliar parts of the developing world.
“What used to be the frontier has almost become mainstream,” said Paul Greer, portfolio manager for EM debt at Fidelity International in London.
The likes of Serbia, Ukraine, Egypt and Pakistan are among his preferred plays this year, he says, as part of a portfolio designed to limit the damage from any surprises.
The temptation to diversify is strong. In the big EMs, the stimulus provided by interest rate cuts last year has mostly run its course. While slow or slowing growth in many countries means that policymakers will have to stay supportive, such support may not be as effective.
Governments with room to spend more will use it, but there are not many of those.
That means investors should not lose focus on the bigger picture. With the turn of the decade, the annual rash of forward-looking reports from analysts has taken the longer view. A “World in 2050” report from consultancy PwC makes the standard case: the world economy will double in size in the next three decades, with EMs growing at twice the pace of DMs; China and India will become the world’s biggest economies.
In contrast, a similar report from Capital Economics suggests China’s share of global GDP will hardly change at all in the period, largely because increasingly centralised government will stifle reform and make the allocation of resources less efficient. Climate change will be a headwind for many EMs, though the application of green technology may bring productivity gains for some.
We may not have to wait so long. Simon Quijano-Evans of Gemcorp Capital warned in a note on Wednesday that changes in fossil fuel dynamics may happen “quicker than we think” and will be felt first in EM currencies, of both commodity exporters and importers.
Reports from Davos suggest President Trump’s assault on environmental “alarmists” received a frostier reception than it would have done a couple of years ago. We may have reached the point at which change speeds up.
EM investors should take note, and lift their heads above the short-term data.
0 comments:
Publicar un comentario