Emerging markets: 2024 forecast. What to expect with the weak dollar?

Within the global financial markets, interest rates and monetary policy of the main world economies play a fundamental role, significantly influencing the economic dynamics of emerging countries.
What predictions for 2024? The recent trend of central banks, in particular the Federal Reserve, towards a more accommodative monetary policy, heralds important changes for 2024 and 2025.
These changes have already begun to manifest themselves through a weakening of the dollar, a phenomenon that deserves analysis detailed to understand its implications on emerging markets.
Specifically, how will the 2024 forecasts impact the stock market of emerging countries? Let's look at some crucial variables.
Federal Reserve, Dollar and emerging markets New expectations for the Federal Reserve's monetary policy indicate a more accommodative approach in the coming years.
This change of course had an immediate effect on the value of the dollar.
The DXY index, which tracks the value of the dollar against a basket of major currencies, showed signs of weakness, approaching 100 points.
At the same time, the euro, represented by the EXY index, recorded a bullish trend.
The CBOE's currency market volatility indices also showed significant increases, reflecting greater uncertainty and dynamism in the currency market.
The value of the US dollar has a direct impact on emerging markets.
A weak dollar makes investments in these markets more attractive to international investors, encouraging greater capital inflows.
This is particularly relevant for emerging countries with dollar-denominated debt, as a weaker dollar reduces the debt burden in local currency terms.
In addition, commodity-exporting countries benefit from a weak dollar, as this can lead to higher dollar commodity prices, improving the trade balance and economic situation of these countries.
In fact, historically there is a positive relationship between the price of raw materials and the stock market performance of exporting countries.
It will be interesting to see how the central bank reacts to this risk.
A rise in commodity prices could have a positive impact on the inflation rate, potentially undoing some of the efforts made by the central bank in recent years.
This would represent a significant contradiction compared to current forecasts of reducing interest rates.
Instead, it would suggest the possibility of a steeper slowdown than the market currently anticipates in adjusting monetary policy How emerging markets will perform in 2023? The MSCI Emerging Markets, an index that tracks emerging stock markets, went through a difficult year in 2023, mainly due to the negative performance of Chinese stock markets.
However, the index is set to close the year with an increase of close to 5%.
In fact, the MSCI Emerging Markets ex-China index, which excluded the Chinese market from its assessments, recorded a rise of 15%, supported by rallies in Indian, Brazilian and Mexican stocks.
Not surprisingly, the Latin America 40 index, which reflects the stock markets of Latin America, has shown a remarkable growth of 34% in the last year, highlighting a growing interest in these markets.
Brazil stands out as one of the biggest beneficiaries of the current situation.
Brazil's central bank has already started cutting its key rate, signaling the possibility of further cuts.
India represents another strong point in emerging markets.
The MSCI India index, despite being valued at 20 times future earnings, continues to be attractive to investors, precisely because of the country's population growth and its positive economic outlook make the Indian stock market an attractive option for investors who seek diversification and growth potential.
Emerging markets: 2024 forecasts China continues to be a crucial element in the context of emerging markets, although, according to some experts, it would be more appropriate to start considering its exclusion from this stock market category.
Instead, it may be appropriate to evaluate indices that exclude China.
The CSI 300 index, which tracks major Chinese stocks, has fallen 14% this year.
Goldman Sachs forecasts that Chinese growth will slow to 4.8% in 2024, down from the 5.3% expected this year, and further decline to 3% by 2030.
While it remains a positive component, it represents clearly a strong slowdown compared to previous years; a slowdown not looked upon favorably by investors and experts, especially given the country's high debt rate, which requires sustained productivity to avoid creating economic "hiccups".
In conclusion, the current scenario offers both challenges and opportunities for emerging markets.
The weakness of the dollar, together with the volatility of currency markets and the changing monetary policies of the world's major economies, is redefining the global investment landscape.
As the new year begins, it is essential to closely monitor the dynamics of emerging markets, which is considered a rather sensitive sector.
It is known that January is a crucial month for redefining investment strategies, and emerging markets could witness significant structural changes from a stock market perspective.