Rising rates in the US, a stronger dollar, Beijing and Washington's trade war, lower oil prices and the emergence of populist leaders in Latin America's two biggest economies could all weigh on markets.
"The theory is dead simple: emerging-market assets have already bombed, so the downside, if things get worse, is much lower and if things recover they have greater potential to perform," said Anthony Peters, an independent analyst, formerly at Blockex Ltd, who's long covered developing nations. However, "they have the potential to go much lower for much longer than anybody had ever thought possible."
The Fed and the dollar
Investors will be carefully watching the US Federal Reserve after Chairman Jerome Powell wasn't as dovish as they'd hoped in comments that followed the central bank's interest-rate increase on December 19.
Added to that, the European Central Bank is set to end asset purchases that have pushed billions of euros into higher-yielding markets such as Poland and Hungary. That may force eastern European monetary authorities into rate increases they've long resisted.
In emerging Asia, economies heavily reliant on foreign investments, such as Indonesia, will face the challenge of maintaining currency stability and stemming outflows.
Trade wars and China
Chinese President Xi Jinping remains defiant, telling some of the nation's most influential military and business figures this month that Beijing won't back down quickly to US trade and investment demands. Any increase in tensions between the world's two dominant economies would probably deal a blow to Asian assets. They've already taken a hit, with China's main stock index on track for its worst year since 2008 and equities in South Korea and Taiwan also falling sharply.
Brazil and Mexico will start 2019 with new populist presidents, albeit from opposite ends of the spectrum. Brazilian stocks have risen to record highs after President-elect Jair Bolsonaro said he'd sell dozens of state-owned companies and picked University of Chicago-trained Paulo Guedes as his chief economic adviser. Still, the right-winger faces a tough challenge reforming the country's generous and exhausted pension system, which will be key to sustaining the market rally.
In Mexico, leftist Andres Manuel Lopez Obrador, who came to power this month, has traders on edge after cancelling a $13 billion airport. Some concerns diminished after he published a conservative fiscal plan for 2019 and after bondholders accepted Mexico's offer to buy back $1.8 billion of debt used to fund the airport's construction. Nonetheless, investors will watch to see if the president can maintain a primary budget surplus even while spending more on social programs.
Even after the US Treasury said it's ready to lift sanctions on one of Russia's biggest companies, United Co Rusal, investors will be wary of moves by Congress. If Special Counsel Robert Mueller's investigation into the Kremlin's interference in the 2016 American election reaches a damning conclusion, that could trigger new penalties, including restrictions on trading Russian sovereign debt or banks.
Saudi oil woes
Brent crude's plunge since early October to around $55 a barrel is bad news for many major developing economies, not the least Saudi Arabia. It needs prices as high as $95 per barrel to balance its 2019 budget, according to Bloomberg Economics. The financial squeeze -- combined with the Western backlash over columnist Jamal Khashoggi’s murder in Istanbul -- means that MSCI’s decision to include Saudi stocks in its emerging-market index from next year might not be enough to attract the investment the kingdom desperately needs.
There are plenty of upcoming polls to keep traders on edge. Indians vote in a general election in April or May and analysts at Credit Suisse Group AG say markets haven't priced in the risk of a coalition government emerging, which could derail Prime Minister Narendra Modi's economic reforms.
Thailand is set to hold a vote Feburary 24 after several delays since the ruling party took over in a bloodless military coup in 2014, and investors are worried about the prospect of social unrest. Indonesia's turn is April 17 -- a rematch between President Joko Widodo and his rival Prabowo Subianto.
In Argentina, Mauricio Macri, who's popular with foreign investors, faces an election in October. With the economy in a recession and inflation at almost 50 per cent, investors are concerned that voters may turn to former populist former President Cristina Fernandez de Kirchner.
South Africa's election in May will be a key test for President Cyril Ramaphosa. If his party fails to win a significant majority, he may be forced to delay market-friendly reforms such as revamping debt-laden state companies by retrenching workers or selling assets. That could trigger a credit-rating downgrade and billions of dollars of outflows, according to Citigroup Inc.
Nigerians vote in mid-February. Their main choice is between President Muhammadu Buhari, who's struggling to buoy an anaemic economy, and former Vice-President Atiku Abubakar, seen as more pro-business but who's long been dogged by allegations of corruption, which he's denied.