The global economy is recovering faster than anyone expected. Successful vaccination roll-outs, lockdown easings, and economic restarts are unleashing a wave of optimism in financial markets.
The US economy has already rebounded sharply, sending the Dow Jones Industrial Average to new all-time highs last week. The IMF predicts the US economy will expand by 6.4 per cent this year, its fastest annual growth since 1984.
Consumers in the UK are also enjoying the easing of pandemic restrictions, with consumer confidence and spending both at their highest levels since March 2020.
But there is also growing discomfort over an economic recovery that has so far been mostly limited to developed countries. Cases of coronavirus are continuing to spike in some emerging economies such as India, Thailand, and Chile, and there are fears that rising US bond yields will make financing for developing countries more expensive and set back their recovery even further.
The world’s largest asset manager, BlackRock, says it expects emerging markets to benefit from the recovery in developed economies, which will support commodities exporters as manufacturing demand rises.
At the same time, a landscape of ultra-low yields and loose monetary policy is encouraging investors to buy riskier assets, with emerging markets and high-yield debt in favour. Investors are optimistic about high-yield debt, with a survey from Bloomberg showing most expect very few defaults in the next quarter.
Within emerging markets, the biggest exception is China. The country was the first-in first-out of the coronavirus pandemic, and its output grew by a mammoth 18.3 per cent year-on-year in the first quarter of 2021.
This only seems to be accelerating. One of the oldest China funds in Europe, Comgest Growth China fund, marked its 20th anniversary this week and discussed a “bigger role” for China as its onshore equity markets develop.
Investors are also increasingly looking to China as an engine of growth for technologies to combat climate change, as Willis Towers Watson highlights in a new research paper. The country, which recently pledged to reach net-zero carbon emissions by 2060, has been criticised in the past by investors for low levels of transparency and disclosure on ESG issues.
Editor, Institutional Asset Manager