Probably the defining feature of its policy is the fact that the Fed indicated it believes that tightening at the wrong time will have global implications that will be negative, explained Thomson.
In Thompson’s view there are two red lights for markets at the moment; Fed policy and China – but both could potentially turn green. When considering tactical decisions regarding emerging markets, these are the two factors that need to be considered, he said.
“When global growth is good, when inflation is rising, when global trade is rising – these are the kind of backdrop conditions that emerging markets tend to do well in,” said Thompson. The absence of growth and earnings in the last five years has narrowed the market down to the only place you can find growth: for example US tech, he noted.
“In any markets on the planet over the last five years we’ve seen this trend that growth stocks has continually gotten more expensive and value stocks have clearly gotten cheaper. Emerging markets can in that sense be considered a value stock,” added Thompson.
To make a value stock work effectively you want to see growth come up and inflation to come back, he continued. In the second half of last year, said Thompson, the situation could be characterised as “all going wrong” for emerging markets in terms of China and the dollar. “And the first half of this year, everything is suddenly positive,” he said.
