EM – Old or Rich…Which Comes First? | Beyond Basic Beta Channel

By Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy, VanEck

China is getting old before getting rich―together with a bunch of other emerging markets.

Please note: Emerging Markets Debt Daily will not be published December 21 – January 1. We look forward to resuming our daily updates on January 4.

We wish everybody a happy holiday and a safe and prosperous New Year!

We had a bunch of noteworthy developments in emerging markets (EM) in the past 24 hours―Russia and Mexico kept their policy rates on hold, Brazil posted another sizable basic balance surplus (current account + foreign direct investments) and the consensus expectations for Turkey’s rate-setting meeting on December 24 rose to 16.5% (=150bps rate hike). But this is the last daily of the year―so we would like to use our annual “closing remarks” to talk about things that will have longer-lasting implications for EM―both for fundamentals (growth, inflation, the structure of consumption, the structure of government spending) and EM asset prices.

Today’s subject is demographics. It is common knowledge that the largest emerging economy―China―is getting old before getting rich. But what about other EMs? We did a little investigation of our own―and found out that quite a few of them are in the same boat. The first chart clearly shows that Russia and Central Europe are hitting key per capita income milestones at a more advanced age than, say, Japan. Further, the same process is taking place in parts of LATAM (Chile, Peru, Colombia) and Asia (Thailand, Vietnam). One country we are watching with great interest is India. India is still “poor” on a per capita income basis. However, its median age/income trend looks closer to China than to other regional peers like South Korea or Malaysia, which got richer at a relatively younger age. Check the second chart below―you can see what we are talking about. This is the reasons why structural reforms (including digitalization) and responsible policies are of such importance―in India and across EM.

Charts at a Glance: EM Demographic Trends – China Is Just the Tip of the Iceberg



Source: VanEck Research; Bloomberg LP

Originally published by VanEck, 12/18/20


PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan’s index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG – JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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