MRP first added emerging markets as a long theme in early December 2015. At that time, the change we saw triggering improved performance for the emerging markets asset class was a peaking of the US dollar’s exchange rate; we suggested that a major top was forming for the greenback. The previously surging dollar, we argued, had wreaked havoc abroad, in particular for many emerging markets.
The U.S. dollar has subsequently had ups and downs since then, notably surging to a new high in the weeks following the Trump victory. But, at this point, the buck has fallen back to slightly below where it was when we published the report year-end 2015. Clearly, sideways was a lot better for the emerging market economies than the big negative that existed previously when the dollar was strengthening for several years. It was enough to stimulate a decent rally: The emerging market indices have risen 6% over the past 7 months.
Some clients have asked if there is a single country market we prefer over other EMs. Indeed, there is: India, which we had first added as an emerging market theme on May 19, 2014 based on the election of Narendra Modi– even before we turned bullish on the whole emerging markets asset class. We removed it from our list on November 11, 2016 due to uncertainty caused by Modi’s demonetization plan; we added it back on April 6, 2017 when we became comfortable that it would not derail India’s economic growth. Recent events have brightened the outlook more than ever . . .