Panel, Conference Presentation
Emerging Markets: Are They Ready for Steadier Performance?
- The session is projected to reserve the final 45 minutes for Q&A, with a possibility of concluding early if audience questions are limited, while three to four roving microphones are anticipated for the floor.
- Jay Palosky anticipates a high threshold for the Federal Reserve to reverse tapering, predicts continued negative effects from China's 2009 capital misallocation, and views pollution and corruption as China's primary tail risks rather than debt or property.
- Palosky expects sharply higher emerging market interest rates to delay domestic credit and consumption growth, describing the path to fixing growth models as another "shoe to drop" amidst stagflation and limited export potential, while forecasting a cautious outlook for the asset class overall.
- Palosky predicts domestic capital from emerging markets will diversify abroad in the next couple of years and that these funds will globalize over the next five to 10 years, viewing Brazil as difficult for foreign investors in the near term despite potential interest in where their institutions invest.
- Madeleine Antonich notes that 600,000 Africans currently own cell phones and expects growth supported by fiscal prudence and governance reforms, alongside African nations competing to improve their World Bank "Doing Business" rankings.
- Antonich reports that emerging market foreign exchange exposure to external debt has dropped from 2.6 to 2.5 times, Latin American debt maturities have tripled from under 1.5 to over 4 years, and reserves have increased 5.5-fold over a decade compared to 4.4 times for developed economies.
- Antonich projects import coverage for reserves rising from six months in 2000 to nearly 13 months, expects Chinese urbanization to reach 60 percent by 2020, and identifies infrastructure, agriculture, transport, electricity, and logistics as key African investment opportunities.
- Antonich expects the Chinese government to require specific reforms to shift from investment-led to consumption-led growth, anticipates the World Bank conditioning loans on governance and procurement criteria, and identifies Mexico as a leader in disaster risk management.
- Madeleine Antonich expects Brazil to face the "middle income trap" with low business confidence due to tight monetary policies, while Jim McCuckin expects Latin America to deliver decent future growth despite structural inflation.
- Ricardo Aderogue forecasts that the tailwind of rapidly growing emerging market debt will not sustain itself, predicting an adjustment to Fed policy normalization driven by financing or current account needs.
- Aderogue suggests that while loosened credit policies do not guarantee a crisis, a hard currency U.S. dollar asset will be more attractive to U.S. investors over the next two to three years, with local currency debt offering value in a longer view dependent on credible monetary policies.
- Aderogue expects local debt yields to reach nearly 7% over a four-and-a-half-year duration if the developed world recovers and trade improves, while anticipating a long period of sanctions and isolation for Russia in Eastern Europe.
- Aderogue considers Hungary, Croatia, and Greece very attractive for hard currency emerging market debt investment, contrasting with McCuckin's view that emerging market fixed income will persist as global banks cannot provide sufficient credit.
- McCuckin predicts growth in developing frontier markets will exceed developed markets over a 5 to 10-year horizon, though he expects China's growth to be lower than the targeted 7 percent for the next two years due to imbalances.
- McCuckin believes China will not achieve its 7 percent growth target, expects a rough ride for emerging markets in the near term, and argues a Chinese financial crisis is far off because the government possesses resources to sustain the economy.
- McCuckin expects high inflation countries to have structurally weak currencies, anticipates emerging market central banks will straighten monetary policy after piggybacking on the Fed, and projects that returns on capital will be lower relative to labor returns over the next decade.
- Palosky expects China's growth rate to settle around 4% or 5% in two or three years, views a crash in China as highly unlikely in the next couple of years, and believes it is extremely unlikely China will issue another major stimulus package.