Emerging Markets: Finally gaining some traction - BBH

After a tough start to the year, EM has been able to get traction as many EM currencies are trading at multi-year highs, while EM equities (as measured by MSCI EM) are trading at the highest levels since 2015, explains the analysis team at BBH.

Key Quotes

“The global backdrop seems relatively benign right now, but we still think investors need to differentiate. For instance, TRY, ZAR, and BRL at current levels seem too rich given the underlying risks in all three. On the flip side, we think China is looking stable right now and should help emerging Asia’s outlook near-term. Below, we discuss the major themes for EM investing in H2.”

“EM monetary policy has decoupled from the Fed, at least for now. Some EM central banks followed the Fed in lockstep with 25 bp hikes, but these were due to their currency pegs. These include Hong Kong, Bahrain, Saudi Arabia, and others. Countries that do not have a peg in place are finding that they do not need to match the Fed. Indeed, many EM central banks have been in easing cycles this past year, with many more simply remaining on hold. Even with a peg, it’s not a sure thing. After the June Fed hike, Kuwait opted to keep rates steady due to sluggish growth.”