Emerging Markets
The risk-on rally is challenging our annual forecast so we are cutting some losses. But we still think central banks and geopolitics will combine to reverse the rally later this year.
The regulatory clampdown on Chinese platform companies is over. However, these companies have entered a new phase of active government control. Going forward, most platform companies’ strategic and business decisions will prioritize national interests, at the expense of shareholder interests. After the recent sharp outperformance, we suggest reducing the allocation to China's Investable Index from neutral to underweight within both global and EM equity portfolios.
When does rising unemployment become a bigger problem than inflation? The Fed won't cut rates until that happens, probably thwarting market hopes of big cuts in 2H.
In this Special Report, BCA Strategist Ritika Mankar highlights that India may prove to be a sanctuary of safety in what promises to be a volatile 2023. Indian equity outperformance could continue, as India ends up offering relatively high growth at a time when EMs at large must contend with the effects of declining exports, high global interest rates, and exhausted fiscal stimulation capabilities.
Remain cautious and defensive overall. Stay long DM Europe over EM Europe. Look for EM opportunities in Southeast Asia and Latin America over Greater China.