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In the June 2016 Global Macro Shifts Issue 5—Emerging Markets: Mapping the Opportunities (GMS-5), we introduced our proprietary Local Markets Resilience Index (LMRI®), which scores emerging market countries according to five resilience factors. In that paper and the updates to the LMRI that have followed, we discussed the risks and opportunities across emerging markets and highlighted the importance of assessing economic resilience in individual countries. Given that macro conditions and the anatomy of shocks are in constant flux, we regularly review and update our LMRI scores.

Our update on the LMRI in November 2022 touched on the challenges many emerging markets faced in recent years as they were buffeted by the successive shocks caused by COVID-19 and the Russian invasion of Ukraine in February 2022. The supply and price shocks arising from these events contributed to weak growth, high inflation, and—for many energy-importing countries—near record-high import bills. The outbreak of conflict in the Middle East in October 2023 and the subsequent disruptions to trade in the Red Sea have once again heightened uncertainty around energy prices and supply chain delays, while presenting more acute risks to the economies in the region.

Against this background, rating the resilience of emerging markets is more challenging than in the pre-COVID-19 years. A number of emerging markets have handled these consecutive economic and geopolitical shocks responsibly by deploying policy to support their economies and dampen the impacts of shocks on businesses and consumers. However, addressing the challenging economic environment of the past few years has depleted many of the buffers that these emerging markets had built up prior to the pandemic, perhaps negatively impacting some countries’ abilities to effectively address future events. Other countries were less successful in managing the economic and political volatility around the shocks and now appear more fragile as a result. Many countries have significantly higher debt levels than before the pandemic, and many central banks hiked policy rates in response to rising inflation, raising debt servicing costs. Today’s conditions therefore make it as important as ever to differentiate more resilient economies from those that have more vulnerabilities.

The LMRI is part of our internal research process. It helps facilitate discussion on a diverse set of emerging markets and compares their policymaking and structural strengths and weaknesses. It aims to identify those economies that are most resilient and that present investment opportunities even in a tumultuous market.

In this research briefing, we provide an update on the scores for 26 countries. In keeping with the focus of this tool on local markets, we have added Uganda to the ratings universe and removed some countries that do not have accessible local market debt. We also look at the five factors we use to evaluate LMRI scores, as well as snapshots on two countries that have projected rising scores, one country with a projected stable score, and one country with a projected decreasing score.

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Investments in lower-rated bonds include higher risk of default and loss of principal. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.

International investments are subject to special risks, including currency fluctuations and social, economic, and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.

Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.

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