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All’s well in EM, but the global backdrop is messy

Weekly investor research

03 May 2016

Economic indicators were generally solid in most Emerging Markets (EM) during the past week. There were encouraging signs of a pick-up in economic activity in Chile, Mexico and even in Brazil, while Colombia’s rate hike is positive for long-term macroeconomic stability. Ecuador and Sri Lanka, two EM countries with perennial fiscal issues, turned to the IMF for support, which should support asset prices. Following its successful relaunch into the global capital markets, Argentina is now focusing on macroeconomic stabilisation at home, in particular, getting control of inflation. Russia signalled that rate cuts are on the way, China’s economy looks stable, South Africa’s trade balance beat expectations and Venezuela’s economic and political struggles continue as the opposition submits 1.85m signatures in favour of recalling President Nicholas Maduro from office. However, the global backdrop remains challenging for many investors. Most developments so far this year – including the falling USD, the rally in EM, a rising JPY, stronger growth in the Eurozone than in the US – fly in the face of deeply entrenched consensus views and current positioning.

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