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The Emerging View
09 October 2014
Developed economies are still accumulating debt, making it tougher to tighten monetary policy and to grow.
Recently, the market has been pricing in a policy mistake by the Fed – evident in lower breakeven inflation,
rising real yields, bigger risks for credit markets, weaker stock markets and a stronger Dollar. We think the
true preferences of central banks in developed economies for supporting the recovery are easily revealed by
market weakness. Emerging Markets (EM) asset prices and currencies have – as always – been buffeted
by the shifting sentiments about the US, Europe and Japan, but fundamentals in EM have hardly changed
relative to the heavily indebted developed countries.
In our view this makes current valuations in EM attractive now, especially in local markets. The recovery from
the Taper Tantrum last year has only been interrupted, not derailed.