Panel
Which Way for Emerging Markets in 2018?
Milken InstituteStaci Warden, David Bohigian, Scott Mackin, Arvind Rajan, Nicolas Rohatyn, Sev Vettivetpillai
- Between now and 2030, emerging markets are projected to account for 90% of global population growth and 90% of middle-class spending growth, adding 1.7 million workers to the workforce weekly by 2030.
- By 2025, 413 cities are expected to drive half of global GDP growth, while half of the world's $1 billion and larger companies will be based in emerging markets.
- Emerging markets are forecast to generate 60% of global growth on a purchasing power parity (PPP) basis, requiring several trillion dollars in added GDP annually.
- Urbanization and a low median age, particularly 18 in Africa, are driving dynamics, with Lagos growing two to three times faster than Nigeria and sub-sectors like automobiles expanding even more rapidly.
- Inflation and expectations are stabilizing in several emerging economies due to rate cuts in Brazil, Russia, South Africa, and Colombia.
- Renewable power projects in Mexico can now be built at 80 cents per megawatt, undercutting new coal projects without subsidies, a shift expected to continue.
- Per capita electricity usage in emerging markets is expected to outstrip developed markets and is not projected to catch up within the current speaker's lifetime.
- Telecommunications, healthcare, and education sectors are anticipated to leapfrog technology adoption, directly enabling consumer economies in the 21st century.
- Infrastructure and energy gaps in Latin America, Africa, the Middle East, Turkey, Southeast Asia, and South Asia are expected to absorb significant capital in healthcare, education, financial services, and consumer goods.
- Blended finance is expected to unlock more capital than ever before in human history.
- OPIC intends to remain operational for several years despite Washington debates and plans to offer tenors of 10 years or longer to address inflation, currency, and political risks.
- Investors are expected to increasingly view emerging markets as fixed income bargains as negative or extremely low real yields become scarce in developed spaces.
- Private equity flows are expected to impact investor returns and liquidity three to five years from now, particularly if a near-future downdraft occurs.
- Private equity funds are anticipated to undergo at least one, potentially two, market distortions over a 10-year fund life.
- Flows in emerging markets are expected to remain pro-cyclical, with the corporate bond market facing a potential "perfect storm" if the dollar and interest rates rise.
- Emerging market corporate debt is expected to reach nearly $1 trillion at the end of the year, with most debt funded through domestic capital and savings.
- Currency step-downs occurring in very short time periods are identified as a crucial factor for company survival during investment horizons.
- Global synchronized growth is viewed as a key driver, with a lack thereof likely causing difficult market environments and domino effects.
- A consensus is expected to reverse after approximately six months regarding U.S. administration impacts, leading back to global growth and low interest rates.
- China is addressing its high debt-to-GDP ratio by embracing state-owned enterprises (SOEs) over a decade-long restructuring process, stabilizing commodity prices and supplying economies.
- Geopolitical threats in North Korea, the Middle East, and China are expected to remain abrupt risks to global recovery.
- The 10-year recovery since the global crisis has been slower than normal due to policy and political contention, creating a risk of policy mistakes that tighten policy too quickly.
- Market participants are expected to underestimate the size of positions and leverage, which could lead to volatility and severe market corrections.
- Overcrowding by assets under management chasing deals is expected to continue in the energy sector, potentially moving the market sideways.
- Digitalization and artificial intelligence are expected to disrupt businesses rapidly, raising questions regarding company survival over the next five years.
- Lack of imagination is expected to hinder solutions as the world transitions from a national industrial economy to an international information economy.