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A Look Forward to 2023: Giving It a Wide Berth
In the emerging markets debt space, the political process can turn the tide of policy and outcomes in a country. As we flip the calendar to 2023, there are several elections and potential policymaker changes on the horizon that could make a splash. As such, we monitor developments on elections closely and find that the following may carry the most weight in the coming months as they will dictate the direction of macroeconomic policy and changes to the quality of governance in the countries we look at.
2022: No Love Lost
Merriam-Webster’s word of the year for 2022: gaslighting. After 2021’s market resurgence from the worst of pandemic-lows, investors were left feeling like a spurned lover in 2022—misled, manipulated and filled with self-doubt from the volatility this year.
Another One Bites the Dust: Ghana’s Gaffes
Following its return to democracy in the early 1990s, investors began to show renewed optimism for Ghana as a pacesetter in the region. In ensuing years, the country was a beneficiary of the heavily indebted poor countries (HIPC) initiative that saw a successful reduction of its public debt from approximately 80% of its GDP in 2000 to around 20% in 2004, putting the country on a positive trajectory. Instead of taking advantage of a clean slate, Ghana’s post-HIPC history has included widening deficits, the abandonment of a disciplined fiscal framework at the onset of Covid-19 and rising core rates as of late. Markets have punished Ghana and given an increasingly unsustainable debt load, Ghana is unable to access external financing sources. Public debt is projected to reach about 100% of GDP by the end of 2022.
Bravo Tokayev—What a Difference a Year Makes
Recently, EMsights partook in a due diligence trip to the nations of Kazakhstan, Uzbekistan and Azerbaijan. We found Kazakhstan, which began 2022 in a bit of chaos, headed down a fascinating path towards reform and disentanglement from Russia. While we would like to see more progress made on Kazakhstan’s economic reform agenda, we are excited to see what President Tokayev does next.
The Folly of Forecasting
“It’s tough to make predictions, especially about the future”
—Yogi Berra
Given it’s that time of year when Wall Street’s market strategists trot out their year ahead outlooks, we thought we might share our thoughts on the value of forecasting or perhaps the lack thereof. If the following sampling of prior year outlooks for CY2022 are any gauge, we doubt next year’s predictions are worth the paper they’re printed on.
Inflation Communication Breakdown
The decision-making process and subsequent market reaction to central bank actions largely dictated financial headlines over the past few weeks. As a recap, the European Central Bank, the US Federal Reserve and the Bank of England all implemented 75 basis point rate hikes. These increases came in an effort to stave off persistently high inflation prints in their regions, including 9.9%, 8.2% and 10.1% annualized rates of inflation in September, respectively.
Lula—Take 2: Lula Victorious in Brazilian Presidential Election
Following a tightly contested race, Brazil’s presidential election on Sunday, October 30 resulted in victory for former President (2003-2011) Luiz Inácio Lula da Silva (or “Lula”) of the Workers’ Party and subsequent defeat for right-wing incumbent, Jair Bolsonaro. Lula amassed more than 60 million votes for the most in the country’s history to defeat Bolsonaro by less than 2% in Brazil’s tightest finish on record.
Trick or Treat: Policymaking Edition
In mid-October, EMsights team members traveled to Washington D.C. to attend meetings around the International Monetary Fund (IMF) and the World Bank Group annual meetings. Given that uncertainty permeates the macro backdrop, it came as no surprise that the meetings held a somber tone. Given Russia’s invasion of Ukraine, Fed tightening and the global inflationary environment in general, uncertainty and bearishness abound. Ultimately, the IMF opted to lower its global economic growth outlook for 2023 to 2.7%, down 0.2 percentage points from its most recent outlook in July, and lower than its projection for 3.2% growth in 2022.
A Market Head Fake While the Foundation Continues to Crack
The convergence of rising interest rates, high inflation and slowing growth have roiled global financial markets, including emerging markets (EM) debt. The Federal Reserve’s rate hikes are taking place against the backdrop of tightening by many central banks in developed and emerging markets. We believe these factors are fueling risk-off sentiment for EM fixed income assets.
Inflation, Inflation Everywhere?
All eyes have been focused on inflation over the course of 2022. Ours too! Most of the attention has been given to the developed world and for good reason—inflation is the highest it’s been in over 40 years for many countries. Consumer prices remain volatile and elevated across much of the world, denting investor optimism for easing inflation and less aggressive interest rate hikes. One country’s recent inflation print really caught our attention. One hint: They do not have an Inflation Reduction Act.Read More