BlackRock Investment Institute

Macro insights

Challenges to EM restart

Emerging markets (EMs) are significantly lagging behind developed markets in the vaccination rollout as vaccine supply remains a challenge for many of them. See the chart. While the pace of vaccination is picking up, the slower rollout may hold back the restart in EMs, even without virus dynamics further worsening, in our view.

Vaccination lags in emerging markets

Chart showing Purchasing managers' index in the U.S., euro area and EM all surpassing their pre-pandemic levels

Sources: BlackRock Investment Institute, with data from Haver Analytics, August 2021. Notes: The chart shows the monthly Markit composite purchasing managers’ index (PMI) for the U.S., euro area and emerging markets. Emerging markets include Brazil, China, Czech Republic, Egypt, India, Indonesia, Kenya, Lebanon, Malaysia, Mexico, Nigeria, Philippines, Poland, Russia, Saudi Arabia, South Africa, Thailand, Turkey, United Arab Emirates and Vietnam, as defined by IHS Markit.

We also see more limited policy space in EMs. Many EM central banks eased significantly through 2020, but some have already started tightening amid a sustained rise in inflation, such as in Brazil, Mexico and Russia. Constraints in fiscal spending may weigh on growth, in our view. Any Fed policy changes could trigger further tightening in financing conditions, though we think a repeat of the 2013 taper tantrum is unlikely.

We see a risk of permanent damages in EMs from the pandemic. This underpins our recent downgrade of EM equities and local-currency bonds to neutral over a tactical horizon.

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Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

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