Page 27 - ISQ Outlook 2023

Global GDP
Emerging Market
Universe

INVESTMENT STRATEGY QUARTERLY Sub-Saharan African
Middle East
and North
Africa
Latin America

Emerging Europe
(including Russia
and Turkey) Asia (including China)

Emerging Market
Universe > Chart 1 - Emerging Market Universe.

Meanwhile, the pandemic’s after-effects have served to universe as in developed economy counterparts over the past
reinforce policy-related challenges weighing on growth even decade. However, it is thought likely to have surged from 3.8%
before COVID struck. Most notably, this has manifested in in 2021 to 6.5% in 2022. Encouragingly, pressures are dissi-
elevated levels of antagonism between China and the West. pating, signalling a likely reversal of the monetary policy
President Biden and his counterpart President Xi certainly tightening process characterising most markets over the past
seemed to emphasise the importance of mutual economic year or so. Several central banks in Latin America and Emerging
cooperation and respect at the recent G-20 Summit. However, Europe have signalled that the rate hiking process is likely over,
the recently reinstalled Chinese leader seems intent on while those in Asia may have a little further to go. In turn, this
pursuing state, rather than market-driven, evolution. How the implies that rate cuts are likely to prove a feature of the
relationship between the U.S. and China evolves will likely emerging market investing landscape in 2023, led by Latin
matter a lot to investors as 2023 unfolds. America, the consequence of lower commodity prices.

ECONOMIC OUTLOOK FINANCIAL MARKET OUTLOOK
According to data supplied by the World Bank and Interna- The combination of ebbing inflationary pressures and easing
tional Monetary Fund, the emerging universe accounts for central bank policy should prove a constructive backdrop for
62.5% of global GDP, of which the lion’s share is accounted for local currency government bonds. Yields on 10-year bench-
by emerging Asia (including China) at 36.7%. Emerging Europe mark sovereign bonds are already on a downward path,
(including Russia and Turkey) accounts for a further 8.3%, particularly so in Emerging Europe. Whilst the continuing war
followed by Latin America (6.7%), the Middle East and North in Ukraine casts a long shadow, investor confidence in the
Africa (3.9%) and Sub-Saharan Africa (2.5%) > see Chart 1 - region, excluding Russia, has revived as natural gas prices have
Emerging Market Universe above. All regions were adversely subsided from their late summer peak. The standout exception
affected by the COVID pandemic but to varying degrees. Latin to this broadly positive trend is Brazil, where bond yields have
America fared worst, with regional GDP plunging by 6.8% in risen on concerns that the recent election might result in
2020, while emerging Asia performed more strongly as regional increased fiscal spending. One limiting factor likely to impact in
GDP fell by just 1.7%. The universe enjoyed a “post-COVID” the very near term is a broad-based diminution in risk appetite
rebound in 2021 from -2.5% the previous year to +7.1%, with as the global economy slips into recession.
Latin America’s commodity boom proving the standout feature.
Although emerging Asia rebounded strongly in 2021, the More encouragingly, that recession is thought likely to be
enforcement of an aggressive “zero COVID” policy in China has shorter and shallower than the pandemic-induced collapse of
put a severe dent in 2022 and prospects for 2023. 2020 and the Great Financial Crisis period. Yields should start
declining on a more sustained basis from mid-2023 onwards as
the global economy revives, inflationary pressures diminish,
INFLATION AND MONETARY POLICY
and central banks cut rates.
Inflationary pressure, as measured by headline consumer price
indices, was never as subdued across the emerging market

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