No rest for the weary in Emerging Markets

By: David Onyett-Jeffries

David Onyett-Jeffries is Vice President, Economics & Multi Asset Solutions, at Guardian Capital LP (GCLP) and provides macro-economic guidance to GCLP and its affiliates— Alta Capital Management LLC and GuardCap Asset Management Limited.

The last 12 months have been extremely challenging for economies and financial markets, but perhaps nowhere was as impacted as Emerging Markets (EM).

The broad expectation at the outset of last year was that the global economy would slow from 2021’s elevated pandemic recovery-boosted rate of growth, but that the ongoing reopening would still support a pace of growth above pre-crisis levels and provide a reprieve for beleaguered EM investors.

This optimism was quickly quashed as more and more clouds emerged and darkened the outlook, chief among them:

• ‏‎Financial conditions tightened as EM central banks raised rates further to combat high inflation, and the US dollar strengthened as Developed Markets (DM) kicked off their own tightening campaign;

‎• ‏‏‎‎Russia’s invasion of Ukraine and the resulting sanctions created shockwaves and sent prices of energy and agricultural goods sharply higher, compounding inflationary pressures and acutely impacting EM households for which necessities of life take up a relatively larger share of budgets;

‎• ‏‏Chinese economic growth momentum slowed drastically as the country’s “zero COVID” policy spurred rolling lockdowns in response to its first significant waves of the pandemic, while the property sector crisis continued.

The impact of these developments was felt globally, but their points of origin and the knock-on effects, given the economic grouping’s dependence on DM, meant EM bore the brunt of the downgrades. Latin America (LatAm) was a notable exception, with the stronger commodity market boosting the outlook for its resource-heavy economies.


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