The big pickup in EM growth should come from Central and Eastern Europe, which has links to the Eurozone.
“CEE looks set to emerge from an expected contraction of 0.6% in 2015. We forecast growth accelerating to 0.7% and 2.1% in 2016 and 2017. Much of this reflects an expected softer contraction in Russia. Otherwise CEE should be supported by moderate recovery in the euro area.
“The main caveat is that this region includes Russia, which has a substantial oil exposure. Furthermore the current geopolitical tensions would advise near-term caution.”
Of all the sub-regions, the firm’s preference with EMs is Asian equities, due to confidence that China’s government can manage the economic rebalancing and to “appealing valuations”.
The more pessimistic
Of the selected firms, the most negative on EMs is Pinebridge Investments, which sees a continuing growth slowdown.
“As a whole, emerging markets have been a big disappointment in 2015. Aggregate GDP growth fell below 4%, which typically corresponds with financial crises such as the Great Recession in 2008, the emerging market debt crisis in 2001, and the Asian financial market crisis in 1998.
“The fact that we avoided a more systemic emerging market crisis may be a relief.”
Yet the firm sees some upside, highlighting the divergence between the two drivers of emerging markets – China and India. China’s slowing economic growth is structural while India’s fundamental economic reforms are creating conditions for core economic progress. It forecasts India’s economy to grow at 7.7% in 2016.
“For the first time since 1999, India is projected to grow faster than China. And India’s growth trend is expected to accelerate further in the coming years, while China’s is expected to slow.”
