As a result, an economic recovery and sustained period of outperformance in EMs will hinge on the “recoupling” of EMs with DMs.
Any decoupling between major segments of the global economy is difficult to sustain given the intensity of international trade and capital flows. The ratio of real trade growth relative to real economic growth globally—known as the global trade multiplier—has been disappointingly weak in recent years, proving to be a headwind for EM.
But, there are signs of selective recoupling as manufacturing-intensive EM countries see a pickup in exports while commodity-intensive EM countries see little signs of export growth.
EM valuations remain attractive on an absolute basis, cheap relative to other global equity segments, and increasingly attractive relative to EM debt.
