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EM’s next growth drivers

The Emerging View

10 May 2016

EM’s long-term growth dynamics remain entirely intact but they are now likely to receive tailwinds from increasingly benign cyclical drivers. Following the giant global portfolio shift induced by QE policies, EM countries now look attractive both in terms of valuations and fundamentals while the rallies in the QE economies look spent. External rebalancing has been profound in EM which will help growth via net exports. Latin America looks very promising as does China. With the start of the Fed hiking cycle now in the past, perhaps the single most important tailwind helping EM right now is the waning momentum behind the Dollar. Global capital follows currencies. If capital begins to flow back to the asset class – which we believe is already starting to happen – then a series of further enhancements to EM’s growth prospects will follow.

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