Fra JP Morgan
- In recent weeks a confluence of factors has sparked a sizzling emerging markets (EM) rally: an easing of global growth concerns, a recovery in the oil price, a retracing in the U.S. dollar and a change in investor positioning.
- The Federal Reserve (Fed) has played a critical role in moderating interest rate expectations. By signaling its relative dovishness at recent meetings, the Fed has been able to check the dollar’s rise. Financial conditions within emerging markets have loosened in response.
- We doubt this rally can be sustained given the prospect of Fed rate hikes later in the year and a resumption of dollar strength. External headwinds are strong, and the EM earnings outlook remains poor. As a result, we continue to underweight EM equities in our multi-asset portfolios.