Emerging Markets Set to Play Key Role in New Year

Emerging markets suffered a torrid year in 2021. Now, facing a new year with looming higher interest rates, stuttering growth in China, and the lingering Coronavirus pandemic, emerging markets face the future with more questions than answers.

Analysts expect tighter US monetary policy to hit developing countries the hardest, as a strong Dollar hurts weak economies. Emerging markets’ stocks lost 7% in 2021, which is a sub-par performance compared to the 22% lift enjoyed by the S&P 500.

Chinese growth is important to emerging market prospects as gains in China spread good news to nearby developing markets. However, China's property-debt crisis, government crackdowns, and concerns about rising rates globally have hurt confidence.

The emerging world constitutes 36% of the global economy and has a prominent place in the broader financial landscape. With emerging markets accounting for 11-12% of global stock market capitalization, its prospects have ramifications for other areas of the market. 

What does this mean for me?

Developing markets play a key role in the global financial system. While they are more volatile than established markets, they offer higher yields and a viable alternative to traditional markets under the right conditions.

As a stock trader and market watcher, you should keep your eyes peeled for opportunities in emerging markets. Knowing how diverse types of markets respond in relation to each other will alert you to new opportunities as they emerge.