Back to the complete issue
Wednesday, 10 June 2020

Covid-19 shows investment risks and rewards in individual EM economies vary more than ever

Covid-19 underlines the home truth that you can’t just lump EMs together in a homogeneous asset class — and the extent to which investment risks and rewards in individual EM economies vary. Recovery in different emerging market economies is being determined by (the vastly different) approaches taken to tackling the pandemic, putting individual countries on different economic trajectories that makes them less homogeneous, Robeco’s global head of fundamental equities Fabiana Fedeli writes in the Financial Times. And with the variation in recovery paths come disparities in the impact of three core EM economic vulnerabilities, Fedeli says. For example, South Africa — whose gross external debt to FX reserves ratio is at 300% — is significantly more exposed to credit default risks than Taiwan, where the ratio is just over 40%.

For long-term rewards, investors should decouple EMs from each other and assess them as individual countries — not as a collective asset class. The potential impact on investment returns will be felt even by the North Asian countries that are closer to economic recovery, especially China. Governments currently pouring money into economic stimulus packages could up the regulation around returns in a bid to increase their inflows. Global supply chains are likely to face continued disruption, as localization increases and companies seek less reliance on a single overseas supplier. And consumption habits will remain low, impacting domestic demand for leisure and travel especially, until a covid-19 vaccine is widely available. This means it’s essential that risks and possibilities for outsized returns are assessed on a country-by-country basis.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.