EMEA markets continue to show resilience
Markets across the EMEA region continue to show their resilience in 2021, with several emerging markets offering some of the highest growth potential globally, experts at the Citi Media Summit said.
Speaking at the virtual event on Wednesday, finance experts highlighted several key trends in the industry, as well as challenges that multinational companies will face during the remainder of this year.
Ebru Pakcan, head of the EMEA Emerging Markets Region, Citi, said that the Covid-19 pandemic had disrupted several industries as well as supply chains across the globe.
“The impact of Covid-19 has really been a global phenomenon, and there isn’t really a single market around the world that hasn’t been impacted by the pandemic. Each one of the markets have thought about stimulus that needs to be pumped into the marketplace and many of these markets have a lot of liquidity just like we see in the US and Europe, supported by the Central Banks and governments.”
She explained that the reality is that in some of the markets have vaccination levels are still below what we are seeing in the US or in parts of Asia and Europe. This, she said, is going to continue to be a challenge. “However, if you look beyond that, then emerging markets will offer some of the highest percentage of growth opportunities albeit some volatility and challenges. In this part of the world, we have seen a lot of resilience and a lot of the ability to bounce back and continue to offer the growth opportunity for many multinationals around the world in various different sectors. We are looking at several untapped markets in terms of putting out goods and services.”
She added that from a supply chain perspective, many multinationals around the world are rethinking their supply chain strategies. “They are focused on resilience and Environmental, Social, and Governance (ESG) themes. There are some supply chains moving out of China, and while South Asian markets have been a beneficiary of that, we shouldn’t underestimate the opportunity for emerging markets in this part of the world to be able to also benefit from this and position themselves for those supply chain shifts.”
A recent 2020 study estimates that investment in ESG funds is now over $40 trillion. Increasing investor interest around ESG started taking off in 2018 and momentum continues to be strong, possibly enhanced by the Covid-19 pandemic. Citi analysts believe the world has reached the “green tipping point” where global climate policy activity is accelerating alongside renewed green commitments from businesses, investors, and consumers. Approximately $10 trillion is generated every two years with a growth trajectory that shows no sign of abating.
“I think that there is a real realisation that diversification of the economy comes with ESG as a very good roadmap for you to start to think about that, and we think that governments that can do that the best are going to recover quicker and reap the benefits,” said Grant Carson, EMEA head Non-Presence Countries, EMEA Consumer Banking Franchise head, Citi.
Citi analysts are confident the level of vaccinations is likely to increase globally, and variants of Covid-19, while expected, are unlikely to cause a second pandemic. Momentum in the world economy could grow through 2022 with gains thereafter. If certain markets have priced in most of the good news, steps must be taken to identify and invest in areas of opportunity for further gains.
Rizwan Shaikh, head of EMEA Emerging Markets Corporate Banking, Citi, noted that analysts are seeing a bit of a “double boom”.
“Commodities are surging and global trade is recovering; combined with persistent low interest rate and supportive fiscal stimulus in developed markets, means that it is all positive for emerging markets,” he said. “This is reflected in some of the market activity that you are seeing today. However, protectionist developed market policy and sharper than expected tightening have the potential to curtail some of the favourable story in emerging markets based on the experience that we have seen previously during the financial crisis.”
Analysts anticipate a generally robust year for commodities. Commodity prices became a bit frothy two-thirds of the way through Q1, but are generally expected to rebound strongly in Q2 and through year-end.
Asked about the performance of the UAE market, Shaikh said:” Credit expansion in the UAE is really being driven by big ticket items through monetisations and the M&A activity that we have seen in the last 12-18 months; whether this is the monetisation of the pipeline assets by Adnoc or the secondary offering of the distribution business that is leading to a need for financing to fund some of that strategic activity. Having said that, we have actually seen very little demand for credit from large corporates for their traditional spending and we hope that as markets recover, this comes back into play.”
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