ChartBrief 145 – The Reemergence Of Emerging Markets

ChartBrief 145 – The Reemergence Of Emerging Markets

Going through the latest numbers from the OECD Composite Leading Indicators data set I thought it would be worth sharing a couple of what I thought were particularly interesting charts.  As the title suggests, they basically show the reemergence of emerging markets (from a cyclical perspective).  The first chart shows the GDP weighted OECD leading indicators for emerging markets and developed markets, and you can see a major turnaround has taken place for emerging market economies, in aggregate.  While there are few exceptions within emerging markets, the extent of the turnaround is just as remarkable as the downturn from which they came.

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The 2015/16 slowdown for emerging markets - partly a commodity collapse side-effect, partly a currency crisis issue, and partly a slowing China conundrum - was the deepest downturn since the financial crisis.  I have my suspicions that this is the type of downturn that can provide a sort of "reset moment", and we've certainly seen that in emerging market equities.  Indeed, the China part of the story is key.  I pointed out previously the impact of rebounding producer price inflation in making the EM equity rally more sustainable or at least more understandable.

But take a look at the China chart below, my view is 2018 brings harder times for China, but for now the leading indicator is pointing to solid short-term cyclical momentum.  Regardless of how next year turns out, the Chinese economy is on a firm footing for now, and as a key part of, and major driver of growth for, emerging markets, should underpin this reemergence.

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After undergoing a sharp downturn in 2015/16 - basically a reset moment - from a macroeconomic cycle perspective it sure looks like emerging markets are reemerging.

China may see harder times in 2018, but for now the short-term cyclical outlook sees solid momentum, thanks to stimulus, rebounding trade, and a booming/bubbling property market.

Reemergence Of Emerging Markets

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Article by Callum Thomas, Top Down Charts

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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.
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