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Investors hope for trade resolution at G20

Emerging markets generally performed more strongly than the broader global equity market during November, boosted by hopes that the US and China might resolve their ongoing trade dispute at the G20 summit in Buenos Aires, and by indications from the Federal Reserve that US interest rates are currently “just below” the level that would have a “neutral” effect on the economy.

  • Brazil’s economy grew by 1.3% YoY in Q3
  • India’s economic growth slowed but remained strong
  • Industrial production stalled in China

Emerging markets generally performed more strongly than the broader global equity market during November, boosted by hopes that the US and China might resolve their ongoing trade dispute at the G20 summit in Buenos Aires, and by indications from the Federal Reserve that US interest rates are currently “just below” the level that would have a “neutral” effect on the economy.

Having expanded by at an annualised rate of 0.9% during the second quarter of 2018, Brazil’s economy posted growth of 1.3% year on year over the three months to September. Over 2018 as a whole, the International Monetary Fund (IMF) expects Brazil’s economy to expand by 1.4%, picking up to 2.4% in 2019. The IMF believes that high public debt and the burden of pension spending are the most pressing policy issues facing Brazil. The Bovespa Index rose by 2.4% during November.

India’s economy expanded at an annualised rate of 7.1% during the third quarter, compared with second-quarter growth of 8.2%. Although growth remained robust in a global context, it was dampened by higher energy prices. The slower-than-expected growth reduced the likelihood that central bank policymakers will move to tighten monetary policy. Rates were last increased in August to 6.5%. The annualised rate of consumer price inflation slowed from 3.70% in September to 3.31% in October, dampened by lower prices for food and beverages. In contrast, wholesale price inflation picked up slightly in October, rising from 5.13% in September to 5.28%. The CNX Nifty Index rose by 4.7%.

Business activity in China rose only marginally in October, according to the Caixin China General Services PMI, and both services and manufacturing weakened compared with September. Industrial production stagnated during the month, having posted growth in each of the preceding 27 months. Meanwhile, as activity in the services sector slowed down, growth in new business stalled for the first time since November 2008. The Shanghai Composite Index fell by 0.6% over November.

Emerging markets will face a range of challenges in 2019, according to credit ratings agency Moody’s, including slower global growth, rising interest rates, protectionism, and geopolitical tensions. In particular, trade tensions and tightening global liquidity pose the greatest threat to the “broadly stable” outlook in Asia Pacific, while credit conditions in most markets in Latin America – with the exception of Argentina – will benefit from improved policy certainty.