EMERGING MARKETS (EMs) tend to perform particularly well when we are in a global growth environment. Last year, this wasn’t the case, as the rest of the world lagged behind the US.
However, 2019 looks set to be different, and we may see trends move away from the US and towards EMs.
In this article we’ll assess what the experts are saying about the outlook for emerging markets in Europe in 2019, paying particular attention to Turkey and Russia, as well as the risks associated with investments in these emerging markets.
Is Turkey’s currency crisis resolved?
EMs are countries transitioning from ‘emerging’ to ‘emerged’ status. In Europe, this means that we often focus on large market economies such as Turkey.
In August 2018, we saw a currency crisis in Turkey. Since then, the currency has restored about 22 per cent of its value. Turkey is in a much better place than it was this time last year, and it has played its geopolitical hand extremely well in places such as Syria. As a result, the country looks stronger on a macro level, which feeds into the economy.
On the other hand, Turkey’s expected growth rate remains low and there is a chance that problems may resurface. However, in a recent special live event focussing on the future of emerging markets, Turkey was selected as a top possible investment idea, alongside Argentina and Vietnam, by one market expert. This is because, although Turkey proved problematic for investors in 2018, many of these issues appear to be on the path to being fixed.
In spite of cutting global forecasts, the IMF has raised its expectations of Russia’s GDP growth forecast for 2019. This prediction was raised from 1.7% to 1.8% thanks to considerable efforts to secure financial stability in the country.
Since Russia defaulted on its Soviet debt in 1998, the economy has shown signs of growth and Russia has managed to erase global concerns over its reliance on oil exports following sanctions imposed after military intervention in Ukraine.
The counter view: Would a major global correction hit EMs in Europe?
Experts still believe that emerging markets remain a cheap-ish asset in an expensive world. The same can also be said for frontier markets (where countries are less established than emerging markets).
If, after investment, we see a major correction, such as an event in Italy that drives the euro down, then it is likely that emerging markets are going to suffer. In this scenario, places like Turkey would be particularly hard hit.
With investments in emerging markets, there’s always a risk associated. However, as an investor, if you wait until there is zero risk, then you’re likely to be waiting until there is zero value as well.
According to the experts, the outlook for Europe’s emerging markets in 2019 appears positive, particularly in relation to Turkey and Russia. However, some volatility is expected to continue. As a result, although there’s optimism for emerging markets, investors should remain cautious.