As we see the US emerge from the winter hibernation (Retail Sales, Industrial Production, Jobless Claims), we are also seeing signs of Emerging Markets recovery on Macro.
One implies the other and while China remains a weak spot, we do not think it’s a headwind anymore, its just not a tailwind. All of this adds up to a view Emerging Markets can begin to make a tactical move on the asset allocation front. We do NOT think this is a quick or easy turnaround, but we do think three years of marginally declining growth in EM has hit an inflection point.
Higher rates throughout the EM world where current account issues and inflation are issues - Brazil (EWZ, quote), Turkey (TUR, quote), Russia (RSX, quote), India (EPI, quote) and South Africa (EZA, quote) will keep growth lower than in places where they do not have to normalize interest rates as quickly - Korea (HCOR, quote), Indonesia (EIDO, quote), Philippines (EPHE, quote), Poland (EPOL, quote) and Chile (ECH, quote).
The implication is that all EM growth is not created equal. G3 acceleration is welcomed in EM and some countries are better positioned than others to share in stronger EU and US growth.
Look for better manufacturing uplift in EM Asia (ex. China). We like Mexico (EWW, quote) to benefit from the US and their own reform agenda but caution that Mexican equities are not cheap. We think CES (Czech, Poland, Hungary) can surprise investors as the EU is growing faster than expected. Some market economists are calling for a small pullback in 2Q in EU and Japan (EWJ, quote), but we think that any pause will be temporary. PMIs in Europe have been in expansion mode for over 27 months and are not falling off in the near term.
On China (FXI, quote), this week's data points confirmed what we knew: China slowed dramatically in 1Q as the PBoC approach to credit tightening hit its target. China’s pullback was engineered, not the result of economic missteps. Watch for a pickup in exports in the next 3 months, and watch for signs that policy makers are more comfortable with credit conditions and the level of the currency. All of this will play into a long China position that can be approached over the next 3-6 months.
- 12 drug traffickers detained in SW ChinaSource: China.orgPublished on 2017-11-22
- Drunk driving kills five in east ChinaSource: China.orgPublished on 2017-11-22
- Chinese HPV vaccine gets permission for clinical testingSource: China.orgPublished on 2017-11-22
- Experts at home and abroad gather in Guizhou for exchangeSource: China.orgPublished on 2017-11-22
- Guardians of the heart of republicSource: China.orgPublished on 2017-11-22
- AI carves out new routes for urban transportSource: China.orgPublished on 2017-11-22
- Corrupt Xinjiang ex-official sentencedSource: China.orgPublished on 2017-11-22
- Workplace accidents see declineSource: China.orgPublished on 2017-11-22
- 6 fired for bungling response to TBSource: China.orgPublished on 2017-11-22
- Giant panda pair to be released into wild tommorrowSource: China.orgPublished on 2017-11-22
- Your first trade for Tuesday, November 21Source: Fast MoneyPublished on 2017-11-21
- NYT’s James Stewart weighs in on DOJ’s lawsuit against AT&T and Time Warner mergerSource: Fast MoneyPublished on 2017-11-20
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- AT&T/Time Warner deal would give competitors incentive to raise prices: AnalystSource: Fast MoneyPublished on 2017-11-20
- Xi calls on HK youths to serve HK, countrySource: Xi calls on HK youths to serve HK, countryPublished on 2017-06-30
- 12 drug traffickers detained in SW China