Why China's rising tide may not lift EM boats

SINGAPORE (May 30): Increased trade tensions at the beginning of May have frayed nerves and, by extension, market returns. It’s unsurprising, therefore, that equity markets didn’t respond well to being reacquainted with trade-policy uncertainty. Our Asset Allocation Team’s Macro Strategy Team reckons that in times of heightened geopolitical risk, the best way to remain focused on economic fundamentals is to cut through the market noise.

In the US and Europe, incrementally better data has generally reinforced the team’s view that the next few months should be marked by stabilisation and/or improvement. The inflection higher in recent US retail sales data should not only serve to stabilise the US economy over the coming months, but also potentially support global manufacturing impulses. Furthermore, China’s macro outlook has improved given the comprehensive list of monetary and fiscal-stimulus measures. However, the spillover effect on the global economy may not be as extensive as before. As a result, the team thinks it is important to temper optimism around the “it’s time to be bullish about EM Asia” thesis that’s been making the rounds.