A framework for assessing the outlook for EM currencies

The case for investing in emerging market currencies remains strong, despite the recent volatility. A combination of rising US rates, concerns about the stability of the global trading system and local political turmoil have generated headwinds for EM currencies. However, the recent sell-off has considerably boosted return expectations given the current level of undervaluation in …read more

Sky-high equity valuations here to stay?

• Have we witnessed the formation of a US equity bubble on the verge of bursting? Or can current valuations be justified by a shift in macro fundamentals?
• We model an S&P 500 fair value range and attribute medium-term price changes to their fundamental drivers. We find that the nine-year bull run can be largely explained by rising dividends and falling real yields. Elevated valuations are consistent with compressed discount rates and, without a significant repricing of real yields, they could be here to stay.

G4 vs Emerging Markets: where are we in the economic cycle?

• After nearly a decade in decline, the growth gap between emerging markets and developed markets is rising once more, but where is each group in its respective economic cycle?
• Although both groups were synchronised before the crisis, their respective economic cycles have since diverged. G4 economies appear to be well into their cycle, but EMs could be at the beginnings of a new cycle – a positive signal for EM currency investors.