EM asset markets have shown signs of coming back into favor, despite elevated trade uncertainty and the looming deadline on U.S./China trade talks, and lingering concerns that global liquidity conditions are deteriorating because of Fed policy and shrinking central bank balance sheets.
The tide of global hot money chasing carry trades has already turned positive for EM assets with flows into equity ETFs spiking dramatically in recent weeks. Moreover, the EM currency basket has been creeping up since last autumn (which is yet another sign that a global recession is not an imminent threat).
We remain overweight EM equities as well as EM
local-currency denominated debt, and expect a period of superior performance to blossom once global economic indicators firm, which we expect to develop shortly.