Emerging market outperformance to widen

Emerging market growth in set to grow in relation to developed markets, as growth in the USA and Europe slows down, while China and other emerging markets recover.

NN Investment Partners said that the difference in annual GDP growth between emerging and developed markets rose from 2.3% in 2015 to 2.9% in 2018. It said that China’s domestic demand should increase due to a policy stimulus. A US and China trade agreement, would also benefit emerging markets, particularly in Asia. NN IP senior emerging market strategist Maarten-Jan Bakkum commented: “We expect the Fed and ECB to maintain their dovish stances, which will remain an important factor driving capital flows to the emerging world. Since last November, when Fed rate expectations started to drop, we have seen capital flows into emerging markets improving. We would expect this trend to continue as the emerging market carry trade becomes more attractive.”

Separately, Schroders emerging market economist, Craig Botham, said that the currency volatility and economic woes of Argentina and Turkey should not cause emerging market contagion. He commented: “Turkey and Argentina are not a symptom of a wider problem in EM; they face some rather unique problems in both the economic and political spheres. Sentiment aside, we see no reason for investors to extrapolate market performance in these two troubled economies to the rest of the asset class.”