Emerging Markets and the Global Economy/Financial Landscape

Foreign direct, portfolio, and private equity investors have different investment timelines, but all begin analysis the same way with political-economic and legal-and regulatory stability. Major global/geopolitical events—and US Federal Reserve monetary tightening—result in often rapid portfolio investment outflows in contrast with direct and private equity long-term commitments, but crisis episodes deter future investment regardless of type. The original Bretton Woods institutions—The IMF/World Bank and regional multilateral development banks like the Asia Development Bank—have been joined in by a new range of actors coinciding with emerging market takeoff including the Asian Infrastructure Development Bank, “BRICS Bank,” and China’s Belt and Road Initiative. Of the more than 40 multilateral lenders many have private sector arms which support projects through equity investments and loans and guarantees on a more commercial basis. Official public sector financing has been dominated by bilateral sources tracked by the OECD, and bigger emerging economies now have their own aid programs. The global pandemic and its aftermath resulted in a series of sovereign external debt defaults, beginning with Zambia in 2021. China’s exposure was more than double that owed to bondholders and for the first time China agreed to co-chair the negotiating group under the G-20’s “Common Framework.” Full resolution took four years with low-income economies now heavy private borrowers, and blurred distinctions and conflicting interests between commercial and official creditors. Sovereign Wealth Funds are another large component in the emerging market investment community although the full extent of their activities is unknown due to lack of transparency despite an internationally agreed voluntary code. Pools in Asia and the Gulf control trillions of dollars in assets and are active across real and financial classes at home and abroad and allocate for straight return as well as political/ geo-strategic purpose.