Emerging markets are poised for significant gains in 2023, driven by major U.S. rate cuts predictions.
These cuts fuel a global rally in these developing areas. The MSCI Index, a key stock measure, is likely to rise by 6.7% this year.
This increase would end two years of losses. Similarly, the currency index may grow by 4.7%, its best since 2017.
Debt markets also show promising trends. Bonds in local currencies could gain 6.3%, the most since 2020. Dollar debts might rise by 11%, the highest in four years.
A bond rally has also reduced risk spreads significantly. Credit default swaps have fallen to their lowest since September 2021.
This drop ensures these markets are more cost-effective.
Ricardo Adrogué notes to Bloomberg Linea deflation, growth, and U.S. policies will shape these markets in 2024.
He suggests emerging markets still offer good value, especially as the dollar and U.S. rates might not rise further.
However, Adrogué warns of geopolitical risks that could add to market volatility. The potential re-election of Donald Trump is a notable example.
Looking ahead, Latin American currencies have outperformed this year. The Colombian peso, for instance, rose 25% against the dollar.
Jason DeVito expects this strong regional performance to continue, driven by high commodity prices and effective inflation control.
DeVito also believes that emerging market currencies will yield high returns as monetary and fiscal policies mature globally.
Manik Narain predicts up to 10% gains in local bonds, citing a favorable part of the deflation cycle.
Lastly, Jason Xavier suggests clients look for untapped potential in certain markets next year.
He sees promise in tech-heavy emerging markets and expects India to excel due to its demographic advantage.