How risky are emerging markets in 2020?

Challenges are being replaced anew with increasingly diverse risks, and rewards: AGF   

Andrew Willis 28 January, 2020 | 1:30AM
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Andrew Willis: From a trade standpoint, we’ve started 2020 off on the right foot. The U.S. and China have reached an initial agreement on trade, the USMCA has moved to the final stages of ratification and a no-deal Brexit appears to be off the table.

With the developed markets appearing to be stabilizing, should you look to emerging markets for growth? We spoke with Regina Chi, Vice-President and Portfolio Manager at AGF Investments, and she says that there are new risks to watch out for – but also, compelling opportunities well worth capturing.

First, the risks.

-Iran: The conflict’s been contained – but other events may escalate the situation

-Tensions between the U.S. and North Korea may flare up again – and pose a risk for the North Asian region

-China and Taiwan: A new anti-China President in Taiwan could spell trouble – and we’ll need to watch closely how aggressively China responds

-India: There’s been a lot of social unrest, which Chi says the market has been underappreciating

-And lastly, that Phase 1 U.S.-China trade deal…? It ain’t over yet, reminds Chi, as the relationship between the two countries remains adversarial, many tariffs are still in place, and recent surveys are seeing more manufacturers moving production out of China.

At the same time, the high growth potential of emerging markets also still remains. One country Chi’s watching is Brazil - It turns out President Bolsonaro has defied skeptics delivering on promises to shore up the economy. Future spending reforms could extend its excellent 2019 performance and potentially help the country regain investment-grade status.

Don’t just focus on geography though. Remember to analyze valuations, growth sentiment and risks before finding those diamonds in the rough.  

For Morningstar, I’m Andrew Willis.

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About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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