Markets have priced in a heavy dose of hand-wringing. Particularly strong drivers of the pessimism have been worries about the Chinese economy, monetary normalization, and trade frictions. But experience shows that the worst often fails to materialize. This may be one of those times, especially in the case of emerging markets, which were battered by these underlying concerns in 2018 to a far greater degree than other markets were.
What if the Chinese economy were to stabilize after a likely poor first quarter due to the liquidation of inventories put in place to beat tariffs? What if the Federal Reserve actually proves to be patient? What if the world’s two largest economies agree to a gradual deescalation of trade tensions? If these “what ifs” come to pass, emerging markets appear poised to flip from 2018’s laggards to 2019’s leaders, in an investment twist on the accounting world’s first-in, first-out (FIFO) principle; in this case, the first to suffer will be the first to get better. READ MORE
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