Emerging market after the 2020 US general election.
A stronger USD and weakness in the Asian tech stocks, which comprise 21 percent of the entire MSCI EM index, are the main factors behind the halt in the EM rally.
In the near term, the dollar is likely to be supported by strong growth outlook for the US.
On a mid to long-term basis, the dollar will be back in its regular range as the widening US twin deficits will exert pressure on the currency.
Also, tech companies are systematically important for China’s economic growth over the next five years, and we expect the policymakers to be pragmatic.
The EMs’ fundamental recovery, both macro and corporate, is still intact in our view.
As vaccination pervades and economies open up, we see the growth gap between emerging and developing markets widening by late 2021.
While it is true that EMs are trading at a higher valuation than their average fair value over the last five years, this is also true of most equity markets today.