In spite of a weak start for global emerging markets in 2024, with GEM experiencing a 4.6% decline in January, Emerging Europe notably stood out, showing an increase of 2.3%, driven by Turkey's impressive surge of 10.3%. This performance reaffirms the region's ability to counter prevailing trends. Meanwhile, in emerging Asia, China and India diverged, with MSCI China dropping by 10% while MSCI India gained 2.4% during the same period. MSCI LATAM faced weakness overall (-4.8%), except for Argentina, which rallied by 4% following the presidential election. Despite escalating geopolitical tensions, developed markets such as the Nasdaq saw positive movements in January, while gold surprisingly experienced a 1.3% loss.
Observing the markets, it's evident that high-beta speculative markets outperformed in January, likely influenced by declining inflation and a relatively dovish stance from the Federal Reserve. This shift saw bonds and risk assets performing well in the preceding weeks. Although inflation decreased more than anticipated in the US, UK, and EU during November-December, it remained elevated in January due to tensions in the Red Sea, leading to diversions of bulk carriers away from the region.
ECB President Christine Lagarde hinted at potential rate cuts in 2024 during the Davos conference in January, pending crucial labour market data expected in late spring. However, three voting Fed members have since expressed scepticism about the likelihood of a March rate cut, suggesting it may be too early, with expectations leaning towards cuts in mid-2024. The primary impetus behind these anticipated rate cuts is the slowing economy, particularly evident in the recessionary conditions of the EU and the UK.
China's economy achieved an annual GDP growth of 5.2% year-on-year in Q4 2023, meeting its year-end target of approximately 5%. However, the post-pandemic recovery remained uneven, and the annual growth rate was somewhat inflated compared to the weak growth experienced in 2022. The absence of a robust economic rebound in 2023, coupled with ongoing issues like the property downturn and subdued prices, contributed to this scenario. Beijing is expected to persist with an investment-driven stimulus strategy similar to its approach in 2023.
Geopolitical unrest in the Middle East drove crude prices noticeably higher, with Brent crude increasing by 5.9%.
In Turkey, the new Central Bank governor, Fatih Karahan, assumes responsibility for tackling the country's persistently high inflation following the resignation of the previous governor. This appointment further consolidates the control over the economy by the current Minister of Finance and Treasury, Mehmet Simsek. Despite a slight improvement in Turkey's Purchasing Managers' Index (PMI) from 47.4 in December to 49.2 in January, indicating a move out of contraction territory, this could potentially exert additional pressure on the Consumer Price Index (CPI) in the coming months. The Turkish Lira depreciated by 2.6% in January.
In Central and Eastern Europe (CEE), the conflict between former President Duda and current President Tusk continues as Tusk signs the 2024 budget but sends it to the top court for review. Poland's PMI declined in both December and January, contrary to expectations of a rebound. Additionally, Poland recorded its second-lowest GDP growth in its 23-year history in 2023, with a meagre 0.2% growth rate, only ahead of the recessionary year of 2020 dominated by Covid-19. Meanwhile, Hungary's central bank implemented a base rate cut of 75 basis points, which was lower than the anticipated 100 basis points due to a cautious outlook.
In Russia, service providers experienced a robust start to 2024, with business activity showing sharp growth, as indicated by the latest S&P Global service PMI, which stood at a strong seasonally adjusted 55.8 in January, slightly down from 56.2 in December. Notably, Yandex N.V. made a significant exit from Russia, marking the largest corporate departure since the onset of the Ukraine war in 2021.
February 10, 2024