Your trusted source

Fidelity’s emerging market strategist Bob von Rekowsky believes 2014 may be a transition year—as emerging market assets adjust to faster overall global growth, more moderate growth from China, and a tapering of monetary stimulus in the United States.

Von Rekowsky presented his predictions and assessments for emerging markets for 2014 in a report titled “Emerging markets 2014. How central bank policy and increasing growth could drive returns,” published on Fidelity Investments website.

Von Rekowsky anticipates another round of taper tumult, but believes a rising interest rate environment alone does not necessarily mean negative returns for emerging market stocks.

According to the expert, U.S. monetary policy may significantly impact emerging market stocks and bonds in 2014. The so-called “fragile five”—Brazil, South Africa, India, Turkey, and Indonesia—are among the most likely to suffer foreign capital outflows in the near term, which could drive their exchange rates lower.

Von Rekowsky believes that for 2014, a not-too-hot/not-too-cold economy may prove just right for China, and for emerging markets broadly. A concurrent transition to consumer-led growth could bring overall GDP growth rates down to a more sustainable 5%–7% range, down from last decade’s heady 8%–10% range.

Emerging markets face an array of election challenges in 2014, with the potential for both optimism and disappointment with regard to necessary structural reform outcomes. The first half of the year is particularly significant, with general elections in South Africa (April); parliamentary and presidential elections in Indonesia (April and July, respectively); parliamentary elections in Hungary (April); presidential elections in Colombia (May); and general elections in India (May). In 2014, presidential elections will be held in Turkey (August) and Brazil (October), two countries whose economic management have been the subject of street protests by unhappy constituents.

Investors should closely assess investments in countries in need of structural reform, such as Brazil and India, while investments in countries where prospects have improved, including Philippines and Mexico, should offer a better risk/reward tradeoffs.

Von Rekowsky also touched upon slow growth in Europe, financing sources for emerging markets, impact of lower energy prices and disruptive technologies, potential spillover effects from an emerging market sovereign crisis and some other issues.