FXStreet reports that Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley, said that with global growth set to exceed expectations in 2021, emerging markets' assets would appear set for outperformance. But this year, three factors cloud that narrative.
“Better US growth should mean higher US interest rates, something that EM economies can be quite sensitive to. Those higher interest rates also make the US dollar more attractive to hold, putting downward pressure on the value of many EM currencies.”
“Many EM economies don't have the same ability as the US or Europe to borrow to support their economic recoveries. So while the usual pattern is for these more volatile EM economies to rebound more than the US as growth picks up; this year, we think they'll rebound less.”
“Stronger global growth should eventually improve the EM asset outlook. But for the time being, we see a better opportunity in cheaper, more cyclical developed markets. Between now and year-end, we think stocks in Europe and Japan will be more attractive to own.”
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