Dovish Fed boosts sentiment towards emerging markets

Sentiment towards emerging markets has improved recently, boosted by a more dovish rhetoric from the US Federal Reserve. China’s economy posted better-than-expected growth during the first three months of 2019, expanding at an annualised rate of 6.4% – the same rate as in the final quarter of 2018. At last month’s annual National People’s Congress. China’s leaders set their target for economic growth this year at 6% to 6.5%.

  • Fitch affirmed India’s credit rating at “BBB-“ with a “stable” outlook
  • Brazil’s services sector expanded sharply
  • The IMF expects emerging markets to post economic growth of 4.4% in 2018

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Sentiment towards emerging markets has improved recently, boosted by a more dovish rhetoric from the US Federal Reserve. 

“The IMF expects economic growth in emerging economies to stabilise at around 5% this year”

China’s economy posted better-than-expected growth during the first three months of 2019, expanding at an annualised rate of 6.4% – the same rate as in the final quarter of 2018. At last month’s annual National People’s Congress. China’s leaders set their target for economic growth this year at 6% to 6.5%. Industrial production posted a sharp increase in March, rising at an annualised rate of 8.5%, compared with February’s growth of 5.3%. Retail sales strengthened in March, rising by 8.7% year on year to achieve their highest growth since October 2018. The Shanghai Composite Index fell by 0.4% during April. 

Credit ratings agency Fitch affirmed India’s credit rating at “BBB-” with a “stable” outlook. Although India has high levels of public debt, a weak financial sector, and some lagging structural factors. Fitch believes that these factors are offset by an encouraging medium-term growth outlook and strong foreign reserve buffers. Fitch estimates that India’s economic growth has moderated in the fiscal year ending March 2019 from 7.1% to 6.9%; looking ahead, Fitch expects India’s economy to expand by 6.8% in the fiscal year ending March 2020, and 7.1% in fiscal 2021. Nevertheless, General Elections in April and May have created some uncertainty about the next government’s ability to command support for reforms. Elsewhere, the World Bank expects India’s economy to grow by 7.5% in the current fiscal year, underpinned by investment growth, improving export performance, and resilient consumption. During April, the CNX Nifty Index rose by 1.1%. 

Investors were encouraged by signs that Brazil’s economy may be gathering strength. Brazil’s services sector experienced a sharp increase in new business during March, according to IHS Markit, boosted by domestic demand. However, employment in the services sector tipped back into contraction. Although manufacturing continued to strengthen, the sector experienced a slight loss of momentum. The Bovespa Index rose by 1% in April. 

The International Monetary Fund (IMF) expects economic growth in emerging economies to stabilise at around 5% this year, although there will be considerable variation between countries. The IMF has forecast growth of 4.4% this year and 4.8% next year across emerging and developing economies – substantially more than its predictions for “advanced economies” of 1.8% this year and 1.7% next year.


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