Emerging Markets  

Proceed with caution

Nevertheless, there are still plenty of reasons to proceed with caution. The elephant in the room with regards to emerging markets is, as always, China. Growth in the world’s second-largest economy is widely expected to slow this year as Beijing cracks down on rampant public debt and imposes curbs on factory pollution. This is ignoring the potential trade war with the world’s largest economy. A Chinese slowdown would likely dampen global demand for commodities, which would have an adverse impact on emerging markets.

Finally, part of the reason for emerging markets’ robust performance over the past few years has been the synchronised global growth outlook. It now appears that the economic conditions are changing. Economic surprise indexes and leading indicators such as the Purchasing Managers’ Index (PMI) are currently pointing towards a slowdown in global economic growth. Contrastingly, in 2013 when the taper tantrum hit, the US, Europe and Japan had only just started their economic recovery. This suggests that history might not repeat itself this time.

Charles Younes is research manager of FE