The outlook for emerging markets is broadly stable for 2019, even as they are set to face increased challenges from slower global growth, rising interest rates, trade protectionism and geopolitical tensions, Moody`s Investors Service said on Thursday.
Ample foreign exchange reserves, growing domestic markets and multiple monetary and fiscal policy tools will help most emerging markets weather these challenges, Anne Van Praagh and Atsi Sheth, managing directors at Moody`s, said during a presentation on Thursday in New York.
"There are challenges but there are also buffers," Sheth told Reuters on the event`s sidelines.
Rising interest rates globally are particularly challenging for smaller emerging markets that borrow from the international financial system, Sheth said.
"The interest rate hikes by the (Federal Reserve) are percolating through the system and that is providing a bit more of a challenge," she said.
The U.S. central bank is expected to raise rates for a fourth time this year in December. The higher rates, alongside strong economic growth, have given a boost to the U.S. dollar, to the detriment of many emerging market currencies.
"In general we have found Asia-Pacific and South-East Asia, just in terms of growth, are still very robust, so that is where we see bright spots," Sheth said.
"On the other hand Africa, where we do still see long-term growth quite strong, is where we have many more negative outlooks and that is partly because a lot of the African sovereigns that have borrowed abroad now face higher refinancing risks," she said.
Earlier this year, Turkey and Argentina saw their currencies plunge as markets fretted over their large current account deficits and high dependency on access to global capital markets.
As elections took place this year in parts of Latin America, greater policy certainty supports stable credit conditions, Moody`s said.
More broadly, growing trade tensions between the U.S. and China could hurt growth and sentiment in emerging markets. Trade tensions pose the biggest risk to Asia-Pacific`s broadly stable outlook, the analysts said.
Changes in U.S. trade policy could disrupt supply chains, investment and revenue for global debt issuers, particularly in Asia, they said.
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