Equity valuations soared in 2019, as loose financial conditions drove price/earnings ratios higher; By sector, tech and consumer discretionary have seen the biggest valuation gains, health care, banks and utilities have lagged; Early U.S. bank earnings have largely beat expectations, with particular strength in trading revenues, upbeat guidance; Global debt hits record of 322% of GDP in Q319; refinancing this year will top $19 trillion across mature and EMs; Electric vehicle sales growing rapidly alongside declining input costs; market share seen rising to 30% by 2030

Sub-Saharan Africa continues to display stronger growth than other EMs. However, this has not resulted in meaningful real convergence for most. Continued high, though declining, population growth is partly responsible. Higher productivity growth is necessary to improve living standards quicker. Rising indebtedness represents the key risk to the medium-term outlook.

China’s SOEs are often criticized for being inefficient and highly leveraged, but the performance gap between SOEs and privately-owned companies is smaller than many think. SOEs gained advantages during the Supply-side Reform, while private companies have lost more to the trade war. 

U.S. sanctions have almost wiped out Iran’s ability to sell crude oil, pushing the economy into recession for a second year and spurring the authorities to increase taxes and cut subsidies. While they are reluctant to renegotiate the nuclear deal, the country's medium-term potential is considerable.

The global debt-to-GDP ratio hit a new all-time high of over 322% in Q3 2019, with total debt reaching close to $253 trillion. Global debt is set to grow faster in 2020 and is estimated to exceed $257 trillion by the end of Q1 2020, driven mainly by non-financial sector debt. 

Amid easier financial conditions and ample liquidity, rising geopolitical tensions leave markets unfazed; With reliance on debt financing on the rise, the global bond universe is fast approaching $120 trillion; Cheap debt and subdued post-crisis equity returns in many markets weigh on IPO activity; Plummeting SOFR-linked issuance in Q4 2019 highlights concerns over transition away from USD LIBOR; China to launch national carbon emissions trading scheme in 2020

Looser DM monetary policy and the US-China truce drove flows to EM. 2019 saw an important rebound in portfolio flows compared to 2018. Foreign currency and local debt attracted the bulk of non-resident flows. Going forward, foreign investors will likely focus on idiosyncratic stories.

We are expanding our capital flows data to include derivatives, starting with an analysis of non-resident currency forwards in Chile. On aggregate, non-residents are usually short CLP via forwards. The correlation between forwards and capital flows isn’t very strong. Recent drops in carry did not result in a shorter forward position.

Portfolio flows to EM stood at $30.7 bn in December. Equity and debt were $12.9 bn and $17.8 bn, respectively. Net capital flows to EM reached $0.7 bn in November.

Structural impediments remain unaddressed and constrain near-term growth. Low growth is the main reason for revenue underperformance and rising debt. Credible fiscal consolidation could improve business and consumer sentiment, paving the way for real GDP growth to pick up to around 2% in the medium term.

As a roadmap to carbon neutrality by 2050, the Green New Deal is seeking profound structural change in the EU’s growth model—in production, consumption, investment and saving.

The annual RiskMinds International conference was held in Amsterdam during the first week of December, drawing an extensive Chief Risk Officer (CRO) community from all continents, including many of the regular participants in the IIF’s various regional CRO Fora.

This month's topics include:

• FSOC Final Interpretive Guidance on Non-Bank Financial Company Determinations
• IAIS Draft Application Paper on Liquidity Risk Management
• IAIS Annual Conference, November 14-15, 2019, Abu Dhabi, UAE
• IIF Insurance Dialogue - December 6, 2019, London, U.K.