Explore our latest thinking on recent market developments
Wind against the tide
By Pierre-Yves Bareau
Rising core rates, escalating trade pressures and idiosyncratic stories in countries such as Argentina and Turkey continued to create volatility in emerging markets. We expect the first two themes to continue into the upcoming quarter, while noise from idiosyncratic stories marginally fades.
Amid global divergences and episodic trade tensions, a number of factors suffered, with equity value mired in its second-worst drawdown since 1990. We see potential catalysts in place across the equity, event-driven and macro spaces.
The 2018 edition of J.P. Morgan Asset Management's Long-Term Capital Market Assumptions draws on the best thinking of our experienced investment professionals worldwide. Refined and expanded over 22 years, our in-depth, proprietary process provides 10- to 15-year risk and return projections for more than 50 strategy and asset classes.
We believe that global reflation is predominantly a growth (rather than inflation) acceleration story. Emerging markets are broadly participating, and importantly the EM earnings cycle has finally turned positive. Risks to this view remain— China growth peaking, a possible "last phase" of USD strength, or a capping of positive earnings estimate revisions (given higher implied growth in current projections). Still, we are optimistic that the turn in momentum can drive additional performance for the asset class, particularly given that valuations are not yet at levels that challenge this improved momentum backdrop.
Given the risks posed by protectionism, we are more cautious on open economies and those more dependent on external funding. Overall, we have shifted our focus from market beta to carry this quarter, coming off of solid first quarter performance, tighter valuations and the little market premium attached to the risks we have identified. We place an emphasis on short-end names and those idiosyncratic stories that we identify as having positive event skew.
New challenges for Emerging Markets: Risk or opportunity?
By George Iwanicki
The unexpected election of Donald Trump as U.S. President sparked dramatic change across the global investing landscape - and Emerging Markets were hardly immune.
