On the contrary, Brazil and Chile cut their policy rates in January, highlighting divergence across the asset class. This has helped EM yield spreads over US treasuries narrow since Mr Trump’s victory as global growth momentum has accelerated to a six-year high, led by an upswing in advanced economies that has become the driving force behind the recent rally in global risk assets.
A sustained recovery in emerging economies, however, will largely depend on the economic and political trajectory of China this year, where stability is expected to lead to prosperity. Under the leadership of Xi Jinping, China is preparing for another ‘selection year’ – the 19th party congress will be held in autumn – giving its leader an unprecedented opportunity to stack top party and government posts with his allies.
He will want stable and healthy economic data going into this event while balancing a transitioning economy, not an easy task, but one made easier by China’s smoothed ‘alternative facts’ to which markets have become accustomed. Could the early signals from Washington to cease financing the global economy with perpetual trade deficits hinder Mr Xi’s chances, or will Chinese stability and a re-acceleration of global growth in 2017 be what it takes to make EM great again? Only time will tell.
Robert Lee is executive director at Signia Wealth
