Emerging markets appeal to investors because of their unrealized potential. As a group, they have performed well, even during crises. The pandemic has influenced this investment opportunity by rendering some EM countries more promising than others. Careful examination and cautious selection of the likely best performers are recommended.
For the world’s economy, 2021 hasn’t yet brought a break from 2020; COVID-19 remains dominant. Although all banking systems are vulnerable to upheaval, the situations for those in emerging markets are more tenuous for several reasons. S&P Global Ratings examined the three major risks facing a sample of 15 EM countries, including likely deterioration in asset quality, geopolitical and domestic policy uncertainty and vulnerability to abrupt changes in investor sentiment.
In February, S&P Global Ratings projected that the total value of outstanding bad debt in the Turkish banking sector will approximately double by the end of the second half of 2020 at the latest.
Emerging markets are already looking forward to 2019, glad to see 2018 nearly behind them. It turned out not to be a good year for emerging markets as a whole, after being on top of the world in 2017. Factors beyond their control—such as the monetary-tightening regime in the United States and high-flying dollar, trade wars and market corrections in developed economies—are largely to blame, but recognizing this will not erase the pain.
At the end of August, leading ratings agency Moody’s downgraded 18 banks and two finance companies in Turkey. According to the agency, the downgrades “primarily reflect a substantial increase in the risk of a downside scenario, where a further negative shift in investor sentiment could lead to a curtailing of wholesale funding”.
When looking at the performance of major markets such as US equities and oil, 2018 has so far provided much for bulls to cheer. But one market that has clearly underperformed year-to-date is gold.
Turkey has suffered a series of blows in recent months, not the least of which originating from Moody’s and Standard & Poor’s, which removed the country’s investment-grade credit rating. These downgrades have reverberated throughout an admirably resilient Turkish banking industry, making tough times just that much tougher, as the overall economy slumps.
On June 23, 2016, the United Kingdom (UK) held a referendum on whether to unwind its relationship with the European Union (EU). The UK populace chose “Brexit”. It was a clear vote against the status quo.