Developed markets which have successfully rolled out vaccines are likely to have a three-to-four-year head start over emerging markets, according to Janus Henderson.
Emerging markets were also more likely to be at risk of defaulting, particularly those in Latin America.
Jay Sivapalan, senior portfolio manager at Janus Henderson, said: “Emerging markets have the lowest amount of debt and the best chance of growth over the next five to 10 years. But they also have to recover from COVID-19 first. Whereas developed markets who have been the first through that will have a three-to-four-year head start”.
Much of Asia, Africa and Latin America remained unvaccinated compared to the United States and Europe. While China had deployed 188 million vaccines, other smaller nations such as Thailand, Malaysia, Peru and Bolivia had issued less than one million so far. In Africa, Nigeria was the only country that had issued more than one million doses.
This problem with vaccinations could also lead to possible default risk which Sivapalan said was an “understated risk” when it came to government debt in emerging markets.
“Latin America is having a much tougher time than in Asia, especially in Brazil. I am not saying that Brazil is likely to default but that’s where the pressure is building. There is also less trust in the political systems there.”
The highest levels of emerging market government debt were seen in Hungary (US$12,252 per person ($15,839)), Czech Republic (US$10,508) and Argentina (US$7,375). By 2025, this was expected to have increased to US$17,690, US$13,602 and US$8,567 respectively. Meanwhile, the debt to GDP ratio was 37% in 2020 and forecast to increase to 42% by 2025.
“[Emerging markets] are all considered high risk and this constrains how much debt they can take on because it means much higher interest rates. They also tend to be much more dependent on foreign financing which leaves them vulnerable to volatile exchange rates,” the firm said in its inaugural Sovereign Debt Index report.
