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 the US President Donald Trump. One can only begin to imagine what steps he will take to improve his re-election chances next year. Will he engage in even more saber rattling, threatening, say, additional tariffs against China or military action against Iran? Or will he focus on keeping financial conditions accommodative in order to ward off a slowdown or recession just before the election?

There are no obvious answers to such questions. Indeed, a friend recently told me that he is closing down his macro hedge fund because the ratio of noise to signal in the Trump era is just too high. Even if one adjusts for the frequency of Trump's outbursts and repeated contradictions, it is impossible to predict where he will land on any given day.

Consider what happened during the G7 Summit in Biarritz, France, in August. The US leader claimed he had received calls from China seeking a new round of negotiations to resolve the trade war. But, according to unnamed sources quoted in the US media, it was untrue, and merely an attempt by Trump to prevent stock markets from falling. Which tells us a lot about where his priorities lie. Meanwhile, the United States seems closer to striking a partial trade deal with China at the ongoing trade talks (whether it will is anyone's guess).

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 US 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 suddenly starts tightening－for example, if inflation finally picks up－developing and emerging markets would fare poorly, as would the rest of the global economy, given the cyclical weakness that has prevailed for most of 2019.

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 the US leaser'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 Washington's "exorbitant privilege", and are now looking for ways to address it.

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 (specifically Germany before the introduction of the euro) and China to allow their own currencies to play a bigger role in the global economy. But I would not be surprised if 2019 becomes the year when these players' attitudes change.

A third issue, of course, is China. The Chinese economy faces a big complication. In 2020, China's real (inflation-adjusted) GDP growth will likely dip below 6 percent. This will be a major disappointment to all who have grown dependent on a growth rate closer to 7 percent, and it will be a marginal net drag for many others.

But that is the glass-half-empty view. For those of us who remain focused on China's longer-term growth path, 2020 will likely be the start of a decade during which the country achieves average annual growth of about 5.5 percent. Indeed, Chinese policymakers cannot expect much more than that, given China's aging labor force. More to the point, as long as Chinese consumers continue to contribute a growing share of overall GDP, 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 stabilizes its annual growth rate just below 6 percent, 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 in the coming year.

The author, a former chairman of Goldman Sachs Asset Management and a former UK Treasury Minister, is chair of Chatham House.

Project Syndicate

The views don't necessarily reflect those of China Daily.