EM From Doom To Gloom

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EM From Doom To Gloom
Quick update today on the latest round of OECD Composite Leading Indicators and an observation on monetary policy trends within emerging markets.  The main point is that from a cyclical perspective emerging economies are seeing a new, more accelerated, phase of their economic recovery, with the composite OECD leading indicator for EM reaching the strongest reading since 2012.  On a macroeconomic cycle basis, EM economies look set to outperform developed markets.

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There's a few drivers in play, and looking at the second chart, a big contributor has been the renewed phase of monetary policy easing.  In contrast to developed economies, many EM central banks are still running high single digit benchmark interest rates, and thus they have a long way to go to ZIRP and therefore have much greater ability to bring monetary policy to bear in boosting their economies and managing the macroeconomic cycle.  The well documented rebound in global trade, stabilization in commodities (and currencies) has also played a key role.  Putting aside the risk of a shock or crisis, EM economies are set to continue their economic outperformance in the medium term.
The GDP weighted composites of the OECD leading economic indicators for EM vs DM show a new phase of the economic recovery is underway for emerging market economies.

Looking at the aggregated view of monetary policy cycles for emerging markets, the current (renewed) monetary easing cycle is likely to add fuel to the current expansion.  This is very important from a global economy standpoint as EM economies now comprise the dominant share of world GDP.

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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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