Emerging markets could be poised to replace the US as the main engine of global growth, according to Martin Currie Investment Management.
2019 saw emerging markets at the mercy of the ups and downs of the US-China trade war, and while those concerns will remain front of mind for many investors, 2020 could see a return to form.
“We expect emerging economies to see stronger domestic growth in 2020 and once more become the main engine of global growth,” Martin Currie, a Legg Mason affiliate manager, wrote in a note.
“Yet there are risks in the form of international trade disputes, public protests and uncertainty within post-Brexit Europe that could leave investors seeking refuge in safer assets.”
While South Africa, Russia, and Turkey are all expected to rebound after years of subdued growth, growth has remained intact in other emerging markets and should expand further on the back of widespread interest rate cuts. That’s particularly true in India, which is introducing far-reaching labour reform policies that could make the country more attractive to foreign investors.
“Enactment of these policies is not guaranteed, but they could be attractive for global manufacturers while also reducing costs for local manufacturers and creating the right incentives for smaller companies to scale up,” Martin Currie wrote.
“All of this would enable more workers to enter the formal economy.”
But in other areas, including Latin America, populism and ideological divisions could make 2020 a challenging year.
“The incoming government in Argentina is stepping into the midst of a currency crisis and facing demands for wealth distribution from a disillusioned populace,” Martin Currie wrote.
“Dissatisfaction with the level of wealth distribution was also behind recent riots in Chile and has forced the government to back down on proposed price hikes in public services. On a more positive note, Brazil looks well placed to drive through pension reform, a keystone in building future confidence in the country’s public finances.”