Emerging economies tipped to drive world growth

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February 05 2020
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Emerging markets could be poised to replace the United States as the main engine of global growth, an investment management firm has suggested.

According to Martin Currie, investors will keep a close eye on emerging markets following a year where the US-China trade war saw volatility in the sector.

While acknowledging some of the “green shoots” in negotiations between the US and China, the fund managers believe the United States, through tariffs that affected supply chains and product price inflation, have slid closer to a recession.

It is likely that the Federal Reserve will continue to provide liquidity to the US dollar, funding markets and cutting interest rates further to stimulate activity, which should boost the economy in 2020.

It is also possible that President Trump might seek a large tax cut for middle-income Americans to garner support for his re-election.

Trade concerns will remain front of mind for investors in 2020, which could shape the industry investors choose, with healthcare, education, cloud computing and clean energy tipped as sources of relative strength within the asset class.

While South Africa, Russia and Turkey are all expected to rebound after years of subdued growth, growth has remained intact in other emerging markets and should expand further on the back of widespread interest rate cuts. That’s particularly true in India, which is introducing far-reaching labour reform policies that could make the country more attractive to foreign investors.

“Enactment of these policies is not guaranteed, but they could be attractive for global manufacturers while also reducing costs for local manufacturers and creating the right incentives for smaller companies to scale up,” Martin Currie wrote.

“All of this would enable more workers to enter the formal economy.”

But in other areas, including Latin America, populism and ideological divisions could make 2020 a challenging year.

“The incoming government in Argentina is stepping into the midst of a currency crisis and facing demands for wealth distribution from a disillusioned populace,” Martin Currie wrote.

“Dissatisfaction with the level of wealth distribution was also behind recent riots in Chile and has forced the government to back down on proposed price hikes in public services. On a more positive note, Brazil looks well placed to drive through pension reform, a keystone in building future confidence in the country’s public finances,” Martin Currie concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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