Globalandlocal:Theoutlookforemergingmarketshingesonglobalandlocalfactors,inourview.IntermsoftheinfluenceofglobalfactorsonEMsthroughcommercialandfinancialchannels,wedonotseeasystemiccrisisloomingoradominoeffect,despitetherisksassociatedwiththelate-cyclenatureoftheglobalexpansion.WethinkEMoverallaremoreresilienttodaythaninthepasttoweatherexternalshocks,andthuslessvulnerabletocontagionandglobaljitters.Takenaswhole,EMstodayhavelargerforeignreserves,lowerinflation,moreflexibleexchangerateregimesandbetterdebtcomposition,withmorerelianceonlocal-currencydebt.Externalandfiscaldeficitshavenarrowed,andframeworksimproved.Now,manyEMhavefiscalrulesandmoreautonomouscentralbanks.Inshort:thisisnotthe1990s.However,notallEMarecreatedequal.LocalfactorsmeanthatidiosyncraticstorieswithinEMarelikelytoremaininthespotlight,inourview.FromArgentina’supcomingelectionsandTurkey’songoingadjustment,toSouthAfrica’sremainingtwindeficitsandBrazil’spendingpensionreform–wethinkdifferentiationmatterswithinEM.Seepages2and3formoredetailonourforecasts.|FOCUS23/05/20191FOCUS|EMERGINGMARKETS22May2019EMoutlookQ32019–DifferentiationmattersPleaserefertoimportantinformationattheendofthisreportEMECONOMICS|EMSTRATEGYKEYMESSAGESForemergingmarkets,ourbasecaseisthatglobalcommercialandfinancialchannelsarebalanced,withidiosyncraticstorieslikelytoremaininthespotlight.WehavecutourEMrealGDPgrowthforecastbelowconsensusandexpectinflationtoremaincontainedinmostEMeconomies.Inturn,softgrowthandlowinflationshouldentailmonetaryeasingacrossEMsthisyear,inourview.MARKETVIEWDespitepotentialglobalheadwinds,ourviewthatrelevantinterestratesinadvancedeconomieswillremainlowforlongiscrucialforEM,aswefindstrongeconometricevidencethatthelongendoftheUScurve(inrealterms)iscriticalwhenassessingsystemicrisksfortheassetclass.WelikereceivingratesinlocalcurrencyinplacessuchasBrazil,MexicoandChina.Formore,seeChina’simpactonEMyieldsandFXandTheimpactofexternalchannelsonyields.MarceloCarvalho,GlobalHeadofEmergingMarketsResearchLuizEduardoPe...
