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| Hopes of global economic recovery have been raised again in the final months of the year. Illustrative photo. (Source: businesslive.com.za) |
US-China tensions and the conflict in Ukraine have seen investment shift to like-minded countries - a sign that companies are betting on geopolitics.
Unfulfilled expectations
Against that backdrop, emerging markets just wrapped up a tumultuous quarter, with China’s economy, the world’s second-largest, slowing, US Treasury yields soaring and oil prices approaching $100 a barrel, leading to the worst stock market decline this year.
Global stocks rebounded on September 29. However, in the third quarter of 2023, stock markets saw $470 billion in asset value wiped out and a series of other currencies fell, while the risk premium for state-backed insurance remained at a three-month high.
As of now, it can be seen that expectations of China's economic recovery in early 2024 are no longer there and the outperformance of emerging economies compared to developed markets has not materialized.
New developments
Experts are currently observing developments that will appear in the fourth quarter of 2023, to make the most accurate forecasts about the market outlook for 2024.
China’s economy is stabilizing, Brent crude oil prices are likely to peak soon, and the dollar’s rise has slowed after hitting a 10-month high, Citigroup strategists said. Moreover, weak U.S. consumer spending data and slower-than-expected growth in the Fed’s preferred inflation gauge have raised hopes that U.S. monetary policymakers will hold off on raising interest rates.
The US labor market will play a key role in the Federal Reserve’s interest rate decision. Here, the strength of the labor market in the face of successive rate hikes has been one of the surprises this year, raising inflation expectations. While the Fed announced it would keep its core inflation target unchanged at 2%, market surveys showed that 12 of 19 Fed officials support another rate hike before the end of 2023.
The volatility in U.S. interest rates and the dollar, which has a major impact on the global economy, could spill over to emerging markets in the form of another stock sell-off. Still, investors are hopeful that recent signs of exhaustion in the U.S. asset rally will continue, leading to a rebound in the fourth quarter.
In China, the stock market plunge has wiped out $1.7 trillion in shareholder wealth since early February 2023. However, unofficial data show signs of economic recovery, with improved industrial profit prospects promising new sources of revenue for companies.
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