Currency

Can Emerging Markets Currencies Outperform the Global Economy in 2024


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The global economic outlook for 2024 is far from certain and to borrow from David Kelly, chief strategist of JP Morgan – “Predicting the future is difficult.”

Yet for many of the major economies such as the Eurozone, UK and US, challenges have mounted.

While inflation fell at faster pace than expected, the Eurozone economy is in recession, the UK economy is stagnant unproductive and besieged by structural issues it cannot shake off while the US, despite its impressive growth, low unemployment and robust economic growth, has an eye-watering national debt that isn’t going away.

China, for its part, faces significant challenges in manufacturing, declining growth and a real estate sector that could collapse an economy because it has been a piggy bank for savers that now looks broken.

At the same time, 2024 will be a record year for elections that are set to be held in the likes of India, the US and UK, while placing uncertainty about how these countries will handle their economic issues under possible new administrations.

In Europe, aging populations, high interest rates, industrial output issues and a significant lack of optimism have seen the Eurozone economies decline in recent months, with Germany posting a 0.3% drop in household spending enough to reverse the growth of the past month and lead to a 0.1% contraction in Q3 2023.

A eurozone recession is here, which alongside oil prices that surged 15.5% since late July 2023, increased cost of importing, and a weakening EUR versus USD, which should bolster exports but for lots of reasons from domestic competition to capacity issues might not, makes for grim reading.

Source: XE.com

Yet the challenges that are the bane of major economies could turn into a blessing for some emerging markets and their currencies.

Plausible winners as we enter 2024

For emerging markets such including the basket of Gulf State currencies, the continued strength of oil and gas prices, production limits and deteriorating geopolitical headwinds should one would think, alongside the huge focus on domestic spending for foreign investments see the likes of the dirham, riyals and dinars, go from strength to strength.

The UAE has become a global confluence for trade, investment, luxury, living and services.

Saudi Arabia’s plans for much of the same are well underway. Qatar remains the richest country per capita.

The region has been afraid to invest in East Africa either as it looks to ensure trading partners, access to food production and improve infrastructure clear multiplier effects and help those trading with or receiving investment from the gulf.

Elsewhere, Mexico is very likely to surpass the rate of global growth due to an ongoing reshoring drive, export-led growth, the upcoming US elections and the likelihood of unorthodox economic policies.

In fact, the MXN has already started to strengthen against the USD after two decades of decline.

For countries who are able to benefit from the anti-China production plans Vietnam and India spring to mind keep external debt low, continue export-led growth and further develop domestic demand, 2024 can be a good year.

True, some commodities prices (softs) may have decreased relative to huge swings in prices post-Covid, the outlook for industrial commodities for new tech, sustainable economies and geopolitical considerations, should help emerging markets sustain prices.

Frankly, things need to improve in Egypt, Turkey and Indonesia maybe 2024 can be their year.

Moreover, if China’s and Europe’s economic issues lead to significant government stimulus to create demand (China) or tackle structural challenges in business cycles and competitiveness (Europe) that will further help emerging economies.

The Western-led model of the economy looks really under threat from huge national debts, deficits and a lack of vision, whereas an enlarged and emboldened BRICS grouping seeks to challenge that and could lead to increased demand for developed market exports of things Europe and the UK are good at services, luxury, autos, investment management, electronics and consumer goods.

The impact on FX movements

The greenback’s appreciation and the high-interest rate environment have led to Asian traders looking for a flight to safety.

For EMs with large dollar debt tranches, this will cause a serious fiscal drag as spending decreases and taxes rise, but for those without things look good.

Any deterioration of the US debt situation will be problematic for all those and future issues with the US debt ceiling aren’t going away just yet.

If the number of elections in developed economies is anything to go by, then political stability will significantly influence investor sentiment, giving traders food for thought – ‘Do I want a politically risky and economically challenged holding of GBP or something less under the microscope?’

In general, the macro picture is mixed. An expensive dollar and high interest rates create challenges for the global economy but also offer opportunities for those earning in dollars or exporting to the few booming economies that are around the pivot away from China continues at a time when the belt and road lost arguably its most high-profile member in Italy.

The year 2024 might be a little different from previous years when talk of emerging markets leads to little happening.

After all, so few nations have moved from emerging to developed, but the conditions for 2024 do offer the chance for certain countries to have solid years or unexpected outcomes.

With the Gulf, Mexico, Vietnam and Argentina’s unorthodox economic policies, Egypt’s yearning for something more and the optimism around Brazil even though the economy struggled in Q3, offer shots of the currencies could fair as compared to the headwinds confronting Europe and beyond.


Robert Quartly-Janeiro is the chief strategy officer of Bitrue. Prior to Bitrue, Robert was managing director of Black Square International, a strategy advisory firm.

 

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