A lot of digesting of changed realities seemed to be going on over the course of the week, and that is even before we start to talk football – which for obvious reasons I will refrain from!
Despite a lack of market-moving economic or political news, markets recovered some ground towards the end of the week, as concerns over an imminent trade war appeared to abate. It is emerging market equities and in particular China which have borne the brunt of the latest market sell off. It would be reasonable to blame all of this on the Trump administration’s playing with ‘trade war’ fire. However, that has only exacerbated the downward pressure that started with the mass repatriation of US$ following last year’s tax reform.
While the severe liquidity shortage in US$ started the headwind for emerging markets, it is China’s reluctance to counter through another massive stimulus which is sending investors reeling. We have a separate article this week that explains and discusses these dynamics. We suggest that this trend may have further to run and, despite having fallen substantially already, we are not yet tempted to buy back into emerging markets from the distinct underweight position we’ve had in portfolios since early March.
