Global Markets: EM Looking Good Versus DM
After adopting a neutral view on developed markets (DM) over emerging markets (EM) equities a couple of months ago, following an almost four-year run of being bullish towards DM over EM, we are seeing an increasing number of opportunities in emerging markets relative to developed states.
We have long flagged the trend of Emerging Asian equity market outperformance over regional DM stocks. As well as holding a bullish view on Chinese versus Australian equities, last week we initiated a bullish view on the MSCI Asia Ex-Japan index versus a basket of the Australian, New Zealand and Japanese benchmark indices. The ratio currently stands at 1.245, and we expect to witness double-digit gains over the coming months.
Similarly, we see the underperformance of Central European equities versus their regional developed state peers as having run its course. Within this framework, we are most bullish towards Polish stocks on the back of relatively attractive valuations, higher dividend yields, and economic growth outperformance. And arguably, our bullish Sector Strategy view on the MSCI Metals and Mining Index – after a long spell of industrial metals underperformance – is a reflection that EM's comeback is likely to continue. This view is up by 2.8% since initiation a month ago, and we anticipate further gains ahead.
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