Greg Gibbs, analyst at Amplifying Global FX Capital, points out that investors had been forced out of long EM positions through the year to October.
Key Quotes
“In Q4 the market started to see the negative feedback from weaker EM economies to the US economy and markets; forcing a shift in the Fed stance, albeit belatedly after hiking for a fourth time in 2018 in December. The Fed is now largely seen in an extended pause.”
“Having exited EM assets and currencies, investors are in a position to cautiously return and do not necessarily need a rock-solid case for growth to increase their exposure. As such, even though global growth concerns are more elevated than a year ago, they have improved in many cases in recent months, especially relative to the US economic outlook that has retreated in recent months.”
“Domestic and geopolitical risks have been significantly dialled down in several countries including Brazil, Russia, Turkey and South Africa. On the other hand, political risk in the US has become more elevated as a government shut-down lingers and policy becomes distracted by border security. Furthermore, while manufacturing PMIs have deteriorated in developed counties and China, they have shown strength in India, Brazil and Russia.”
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