When it comes to the outlook for emerging markets in 2020, the bottom line is maddeningly simple: “It’s complicated.” There are a number of reasons for this. For starters, we are living in extraordinary times, owing to the unpredictable personality of United States President Donald Trump. As the 2020 US presidential election approaches, his behaviour is likely to become even more erratic. To improve his re-election chances, will he engage in even more sabre-rattling, threatening, say, additional tariffs against China or military action against Iran? Or will he focus on keeping financial conditions accommodative of a slowdown or recession just before the election? There are no obvious answers. Consider this. During the G7 summit in Biarritz, France, in August , Trump claimed he had received calls from China seeking a new round of negotiations to resolve the trade war. But, unnamed sources quoted in the US media said this was untrue, and merely an attempt by Trump to prevent markets falling. That tells us a lot about where Trump’s priorities lie. And, in the meantime, China and US negotiators have announced a partial trade deal . A second complication for the 2020 outlook is monetary policy. What path is the US Federal Reserve likely to take, and what will it mean for the dollar? These two related issues tend to have a disproportionate influence on developing and emerging markets, particularly those with a lot of dollar-denominated debt . If the Fed continues easing its monetary policy as expected, and if the dollar stops rising, emerging markets will have less to worry about. But if the Fed is forced suddenly to start tightening – for example, if inflation finally picks up – developing and emerging markets would fare poorly, as would the rest of the global economy. Against this backdrop, one also must consider the underlying structural use of the dollar. Traditionally, the dollar’s role in the global economy has been conflated with its price performance against other currencies. But these are now becoming two separate issues, owing to Trump’s profligate use of the dollar as a weapon in his various foreign-policy battles. Other countries have taken note of the threat posed by America’s “exorbitant privilege” and are now seeking ways to address it. How the Fed is prolonging the trade war and endangering the world Russia, for example, has dramatically reduced its US Treasury holdings, and the Europeans have created a payment mechanism for bypassing US sanctions on Iran . Unlike many others, I have long attributed the dollar’s dominance to the reluctance of Europe and China to allow their own currencies to play a bigger role in the global economy. But I would not be surprised if these players’ attitudes have changed. A third issue, of course, is China, which to my surprise is still described as an “emerging market”. Given China’s ever-expanding role in most other countries’ economies, it has not fit the traditional definition of an emerging market for quite some time. Still, I suspect that the label will persist as long as China’s per capita income lags behind that of advanced economies. In any case, the Chinese economy is facing a big complication. In 2020, China’s real (inflation-adjusted) GDP growth is likely to dip below 6 per cent per year. This will be a major disappointment to all who have grown dependent on a growth rate closer to 7 per cent. But that is the glass-half-empty view. For those of us who remain focused on China’s longer-term growth path, 2020 is likely to be the start of a decade during which it achieves average annual growth of around 5.5 per cent. Indeed, Chinese policymakers cannot expect much more than that, given China’s ageing labour force . More to the point, as long as Chinese consumers continue to contribute a growing share of overall gross domestic product, pessimism about China’s prospects will be unwarranted. A final issue for so-called emerging markets will be their equity market valuations. As matters stand, emerging-market equities are generally inexpensive – and, by some measures, quite attractive – relative to equity and bond markets globally. If Trump decides to play nice, the Fed remains a benign influence and China stabilises its annual growth rate just below 6 per cent, emerging-market equities could do rather well in 2020. To be sure, those are major contingencies to consider, and emerging-market countries have plenty of specific challenges of their own. But I would not be too surprised if investors’ on-and-off love affair with sub-Saharan Africa heats up again. Several of those countries are showing signs of positive structural improvement. Investors would do well to keep an eye on them. Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former British Treasury minister, is chair of Chatham House. Copyright: Project Syndicate