This document discusses emerging markets in the aftermath of the commodity price crash. It notes that many emerging markets are major commodity producers and were significantly impacted by the collapse in commodity prices from 2014. This undermined the thesis of a commodity "supercycle". While emerging markets regained momentum in 2017, ongoing challenges include global policy normalization, uncertainty around continued commodity price rises, growing trade protectionism, China's economic rebalancing, and signs that the global economy may have peaked. The document uses Saudi Arabia as a case study, noting the country's dependence on oil and efforts to implement fiscal reforms and economic diversification under its Vision 2030 plan. In conclusion, while emerging market prospects overall remain favorable, the need for commodity-dependent nations to adopt

1. Emerging Markets in the Aftermath of the
Commodity Price Crash – Onwards &
Upwards?
Amír Khan | Global Economist/Advisor
Email: amir.khan.uk0709@gmail.com

2. Loan Market Association
the authoritative voice of the EMEA market
Focal areas
▶ Context & Recent Developments
▶ Key Themes/Challenges to Watch
▶ Country Case Study – Saudi Arabia
▶ Concluding Thoughts/Q&A
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3. Loan Market Association
the authoritative voice of the EMEA market
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Context & Recent Developments

4. Loan Market Association
the authoritative voice of the EMEA market
i) Why the commodity price crash matters?
▶ Many EMs are key commodity producers &, in light of the recent collapse in
commodity prices, have seen a profound impact on their economies & public
finances.
▶ This development, in turn, has raised questions about the sustainability of some
of these economies future “growth models”.
▶ The post-2014 collapse in commodity prices, has served to undermine faith in
the commodity “supercycle” thesis.
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5. Loan Market Association
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ii) EMs regain their mojo…
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▶ 2017 marked a sweet spot for EMs, thanks to synchronised global growth, a pickup in
international trade & the continuation of accommodative policies.

6. Loan Market Association
the authoritative voice of the EMEA market
iii)…A development which has given EM assets a leg-up
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7. Loan Market Association
the authoritative voice of the EMEA market
Key Themes/Challenges to Watch
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8. Loan Market Association
the authoritative voice of the EMEA market
i) Global policy normalisation
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“Only when the tide goes out do you discover who’s
been swimming naked” - Warren Buffet

9. Loan Market Association
the authoritative voice of the EMEA market
ii) Can commodity prices continue to rise?
▶ Commodity prices have seen sizeable gains through the course of last year & into this.
While some of the price action has been driven by improving fundamentals, geopolitical
& other such factors have also played a role.
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10. Loan Market Association
the authoritative voice of the EMEA market
iii) Growing prospect of protectionism
▶ The flaring up of recent trade tensions between the US & China is not
welcome news.
▶ While a full-blown trade war may yet be averted, the current stand-off between
the world’s two largest economies could be detrimental to the global economy,
as it seems be undermining business confidence.
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11. Loan Market Association
the authoritative voice of the EMEA market
iv) China’s changing growth dynamics
▶ The Chinese economy has defied fears of a “hard landing” over last couple of
years & continues to achieve growth in 6.5-7% range.
▶ But the potential threat of a trade war & ongoing efforts to rebalance the
economy away from its traditional reliance on credit-fuelled growth & net
exports could still slow the economy. This could have both domestic & external
implications.
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12. Loan Market Association
the authoritative voice of the EMEA market
v) Global economy may have peaked
▶ Recent survey & other high frequency data appear to suggest that the global
economy may have peaked.
▶ These developments – taken together with recent trade skirmishes & the
potential risk of a policy error on the part of the authorities – could lead to a
more meaningful slowdown going forward.
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13. Loan Market Association
the authoritative voice of the EMEA market
Country Case Study – Saudi
Arabia
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14. Loan Market Association
the authoritative voice of the EMEA market
i) Why Saudi Arabia?
▶ Saudi Arabia is one of the most resource-dependent economies in the world.
▶ The country has a young & growing population for whom the need to create
jobs is of vital importance.
▶ The willingness of the Saudi authorities to embrace reforms sets it apart from
other big resource based economies e.g. Russia & Nigeria.
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15. Loan Market Association
the authoritative voice of the EMEA market
ii) Saudi public finances & oil price dynamics
▶ The oil price crash created a massive hole in Saudi public finances (fiscal deficit >15%
of GDP in 2015). While the country has instigated spending cuts, this arguably needs to
go further to reduce the country’s high fiscal breakeven position.
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16. Loan Market Association
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iii) Need for reforms – short-term measures
Short-term measures have focused on the expenditure side & have included:
▶ Postponement/delays to non-vital capital expenditure
▶ Subsidy cuts including to oil & utility bills
▶ Cuts to public sector wage bill
▶ Additionally, the country has selectively tapped international banks/capital
markets to diversify its funding base
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17. Loan Market Association
the authoritative voice of the EMEA market
iv) Need for reform – long-term measures
► Has developed “Vision 2030”, with the aim of diversification/boosting private sector.
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18. Loan Market Association
the authoritative voice of the EMEA market
Concluding Thoughts
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19. Loan Market Association
the authoritative voice of the EMEA market
Key Takeaways
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▶ Despite the evolving global backdrop, the economic prospects for EMs on
the whole remain favourable.
▶ That said, with global liquidity conditions set to likely tighten going forward,
there’s a sense this is “as good as it gets”.
▶ For commodity-dependent EMs, while the urgency to reform has lessened
owing to the recent recovery in commodity prices, this doesn’t negate the
need to adopt such reforms to “future proof” their economies.