IMF Warns of Potential Debt Crisis in Emerging Markets

The emerging markets (EM) space was one of the hardest hit during the Covid-19 sell-offs and certain countries will continue to struggle on the path to recovery. As such, the International Monetary Fund (IMF) is now warning that a potential debt crisis could be brewing in EM.

Per a Financial Times report, a “fresh mass outbreak of Covid-19 could increase the risks of an external debt crisis among emerging and developing economies which are vulnerable to sudden capital outflows, the IMF warned on Tuesday. The economic impact of the pandemic has been especially acute for countries that rely on oil, tourism, or remittances from migrant workers.”

“Many of these countries faced a fall in their current account balances this year equivalent to more than 2 percent of gross domestic product, said the IMF,” the report added. “In its annual assessment of global imbalances, the fund said trade balance losses were likely to exceed 3 percent of GDP for oil exporters such as Norway, Russia, and Saudi Arabia. In countries such as Costa Rica, Morocco, and Portugal, losses of tourism proceeds could exceed 2 percent of GDP, while lower remittances would hit hardest in countries such as Guatemala, Pakistan, and Egypt.”

“Such intense shocks may have lasting effects and require significant economic adjustments,” wrote Martin Kaufman and Daniel Leigh, the report’s authors.

As global economies continue to reopen, the EM space is still a good opportunity to capture diversification and growth as a value-tilted option, but the right strategy that highlights due diligence is a must—enter the Goldman Sachs ActiveBeta Emerging Markets Equity ETF (GEM).

GEM seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Goldman Sachs ActiveBeta® Emerging Markets Equity Index. The fund invests at least 80% of its assets (exclusive of collateral held from securities lending) in securities included in its underlying index, in depositary receipts representing securities included in its underlying index and in underlying stocks in respect of depositary receipts included in its underlying index.

GEM Chart

GEM data by YCharts

The index is designed to deliver exposure to equity securities of emerging market issuers. In order to obtain the highest quality equity exposure, GEM aims to acquire stocks based on four well-established attributes of performance: good value, strong momentum, high quality, and low volatility.

In a capital market environment where value is often pitted against growth in a battle of factors, GEM uses both in addition to other factors that can filter out the best equities that can capture upside, but at the same time, mute the effects of a downturn. Rest assured, GEM gives investors the diversification they seek with emerging markets, but only the best that EM equities have to offer using their strategy.

Additionally, for more market trends, visit ETF Trends.