Experts believe that 2021 will be a year of recovery, but not of growth. According to a study, Thailand, Russia and South Korea are among the emerging economies that could exceed expectations next year.
To reach this conclusion, Bloomberg studied 17 developing markets taking into account 11 economic and financial indicators. According to the agency, many emerging market economies are poised to make up for what they lost in 2020. Foreign exchange reserves that are in good shape, particularly in Asia, provide a cushion against external turmoil, but it will also be worth keeping an eye on high debts and its share of GDP to detect future risks.
The study places Thailand at the top of the list due to its strong reserves and a high potential for portfolio inflows, while Russia ranked second thanks to balanced external accounts and a stable fiscal profile, as well as an undervalued ruble.
According to Bloomberg, the assets of developing nations are on track for another successful year, thanks to the unprecedented fiscal and monetary stimulus deployed to combat the pandemic. As the global recovery takes hold and the Federal Reserve keeps interest rates low, risk appetite should continue to strengthen in 2021 amid favorable valuations and attractive real returns attractive to foreign buyers.
Growth recovery after the pandemic
Nonetheless, the growth of emerging markets has certainly taken its toll from the pandemic, including those like Thailand, which are especially reliant on tourism.
Thus, analysts are targeting high growth rates next year for some of the most affected by 2020. Each of the top five growth rates for 2021 is from Asia. At the forefront are India, China and the Philippines.
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“Countries that manage to contain the outbreak, introduce large stimulus, have low exposure to the hardest-sectors and aren’t reliant on foreign capital will fare better. China and Turkey are already at their pre-virus peak, although the latter relied on an unsustainable credit boom,” explains Ziad Daoud, chief emerging markets economist at Bloomberg Economics, adding that India, Chile and South Korea will also get there through mid-2021.
Structural vulnerabilities and activity
The Goldman Sachs group’s effective lockout rates, in turn, indicate that once the pandemic is under control, most developing economies stand to gain a lot in terms of recovering activity. All of those indices should eventually converge close to zero. These economies include Malaysia, Chile and the Philippines.
Structural weaknesses that worsened in the middle of the pandemic also pose risks for emerging markets, the Bloomberg states. Current account deficits, especially in Colombia and Turkey, reveal that these countries are vulnerable to a negative shock.
Fiscal deficits, especially in Brazil, South Africa, and the Philippines, have added to the high public debt burden. Hungary and India are also a matter of concern for specialists.