For 2020 the investment backdrop in emerging markets is likely to remain unstable. However, on a relative basis, overall growth for some emerging markets is forecast to improve, owing to both low base effects, but more importantly, supportive reform agendas such as tax cuts in India and the long awaited final passing of the new pension reform bill in Brazil.
Looser central bank policy globally and less potential for dollar appreciation should also aid emerging market performance through 2020, reigniting their growth premium over developed markets. The new growth drivers in emerging markets are related to rising wealth effects, the size of the market opportunity (given the vast populations in China and India alone), with still low levels of penetration and monetisation, making this a compelling prospect for many investors.
Due to this, we continue to believe the best long-term investment opportunities are within the consumer sectors, such as the internet, education or specific discretionary spending beneficiaries. Factors like tax revenue growth, the demographic profile; economic condition; structural balance; debt and pension/OPEB1 ; and governance, in our view, deserve their fair share of analysis from bond investors too.
Naomi Waistell, portfolio manager, Newton
1 OPEB = Other Post-Employment Benefits.