德银-新兴市场-新兴市场展望2018：协同增长-20171207-136页_4mb

Emerging Markets Outlook 2018: Synchronized Growth Summary

Core Content

This document provides an outlook for Emerging Markets (EM) in 2018, emphasizing the importance of EM-specific factors, particularly political developments, alongside synchronized global growth. It outlines economic forecasts, FX and rate expectations, and credit market dynamics across various regions and countries.

Key Economic Forecasts

Main Points

• Synchronized Growth: EM is expected to grow in sync with the developed world, with Asia's cycle most advanced and Latin America (LatAm) catching up.
• Political Risks: A heavy political calendar is anticipated in Brazil, Mexico, South Africa, Russia, Turkey, South Korea, India, Indonesia, and Colombia, which could bring about unproven or off-center governments.
• Venezuela: The country faces the possibility of a large debt default, which is already largely priced in.
• FX Outlook: EM FX is expected to deliver a total return just shy of 5% in 2018, driven by strong growth, contained external vulnerabilities, and less monetary stimulus. LatAm FX is expected to perform well.
• Yields: The yield downtrend is likely to give way to a more range-bound environment. EMFI (Emerging Markets Fixed Income) is projected to have flat returns, with EMEA at ~4.5%, Asia at ~4%, and LatAm just below 4%.
• Credit Market: EM credit faces challenges from valuation and higher core yields, but spillover from core CBs and improving fundamentals support mild spread tightening. Total returns are expected to drop to near 3%.
• Corporate Bonds: EM corporates are expected to see mild tightening in spreads, with a focus on credit differentiation and curve views. Certain sectors in LatAm and CEEMEA are favored, while others like Mexico and Venezuela are cautioned against.
• Oil Prices and India: A stress test on India's macro indicators is conducted, assuming oil prices remain around USD65/barrel. The report suggests that higher oil prices could have a significant impact on inflation and policy.
• US and EU Growth: US growth is expected to remain above potential, while EU growth peaks in 2018 at 2.3%, with inflation expected to stay low.
• Monetary Policy: The Fed is expected to hike once per quarter in 2018 and three more times to reach 3.1% in 2019. The ECB is expected to taper in Q4 and start hiking by mid-2019.
• China and Hong Kong: China's policy focus has shifted to "containing risks" and "boosting growth" is likely to moderate. Hong Kong faces a greater risk due to a looming property market correction.
• India: The RBI is expected to maintain an extended pause, with CPI inflation forecasted to average 4.5% for FY19. Real rates are expected to remain neutral.
• Russia and Egypt: Both are expected to continue with rate cuts, with Russia potentially cutting 150bps to 6.5% by end-2018 and Egypt as much as 475bps to 14%.
• South Africa: Faces significant political uncertainty and risks a downgrade from Moody's. Fiscal challenges are expected to persist.
• Turkey: Faces elevated inflation, high interest rates, and a weak currency due to domestic and geopolitical risks.
• Poland and Hungary: Poland is expected to hike rates preemptively, while Hungary will maintain loose monetary conditions.

Key Risks

• Political instability in several EM countries.
• Potential for a significant debt default in Venezuela.
• Oil price shocks and their impact on inflation and policy.
• Tightening liquidity conditions and rising yields in the US and EU.
• Fiscal challenges and policy uncertainty in South Africa and China.

Outlook Summary

• EM growth is expected to remain supportive, but the main headwinds are narrowing gaps and tightening liquidity.
• FX performance is positive, with LatAm leading.
• Credit markets are expected to see mild tightening, with EM credit returns likely to drop to near 3%.
• Political events will play a crucial role in 2018, especially in Brazil, Mexico, South Africa, Russia, Turkey, and Venezuela.
• The year is seen as pivotal for both the US and the EU, with policy normalization expected.
• The report highlights the importance of country-specific analysis and curve views in EM investment strategies.