Emerging Markets Experience Remarkable Upswing in 2024
Emerging markets (EM) are experiencing a remarkable upswing in 2024, driven by an increasing influx of foreign capital. This upward trend, which began at the end of 2023, is taking place in a favorable economic context and a renewed appetite for risk among investors.
According to the QNB weekly commentary on June 9, 2024, a reversal in the Federal Reserve's monetary policy and a global economic recovery have played a crucial role in the turnaround of EM fortunes, following a period of gloom in 2022 and early 2023. The easing of the Federal Reserve's monetary policy, coupled with stable global economic growth and a slowdown in inflation, has created a favorable environment for investments in EM.
Since the end of 2023, investors have massively invested in local assets in EM, attracted by attractive returns: 17.6% for stocks and 13.9% for bonds. This trend has persisted despite a recent adjustment in expectations of rate cuts by the Fed for 2024.
Three main factors explain the resilience of capital flows and returns in EM:
Moderation of US Growth
The stabilization of the US economy, combined with an improvement in global economic indicators, reinforces the attractiveness of EM.
Recovery of Global Manufacturing Activity
The upswing in global manufacturing production since February 2024 particularly benefits EM, especially in Asia, where this sector is a pillar of the economy.
Solid Economic Fundamentals
Unlike advanced economies facing imbalances, EM boast prudent fiscal policies and proactive monetary policies to combat inflation, such as in Brazil and Mexico, thereby strengthening their economic stability.
If global financial conditions continue to improve and US inflation continues to decline, capital flows to EM could intensify further in the coming quarters.
This upward trend opens up promising prospects for EM, positioning them as attractive investment destinations for investors seeking solid returns and exposure to dynamic growth economies.
However, it is essential to note that this analysis is based on current data and projections. Unforeseen changes in the global economic environment could affect capital flows and returns in EM.