Despite exposure to a number of negative influences this year, Emerging Markets have proved resilient. As we survey the EM landscape, however, we caution investors against becoming too optimistic.
Four conditions that have led to a decade-long boom in the market – strong global growth, high commodity prices, weak US dollar and low US interest rates – have dissipated over the past couple of years, causing EM to struggle during that time.
In the US this year, economic softness in H1 caused the Fed to extend tightening expectations. The earliest we expect a hike is the December 14 FOMC meeting; in the interim, we see a window where we expect EM can regain its footing.
“It’s clear that EM as an asset class can still thrive even under difficult global conditions. It is equally clear, however, that not every EM has the institutional stability that is often required for long-term prosperity. As the economic backdrop remains weak, the political element becomes a very important determinant for a country’s trajectory going forward.”
Read the full article here.