- The combination of broadening economic growth and contained inflation is driving strong earnings gains. In 2017, profit growth was the major source of total return for emerging market (EM) equities, which are still approaching only the middle of their performance cycle.
- We expect disinflationary slack will disappear from most of the developed world in 2018, so any acceleration in economic growth from this point could present late-cycle complications.
- Despite extended outperformance by EM information technology stocks, we do not see a bubble in the making. Earnings have fueled the gains, and multiples for the sector remain well within normal ranges.
- Although U.S. valuations do appear a little heady, EM valuations are well below their long-term average, even after the multiple expansion of recent years.
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