It’s a country picker’s market. The most synchronized global economy in a decade comes with an unusual counterpart: the most un-synchronized global equity markets in over a decade. Country differentiation will become increasingly important as a mix of country-level risks and macro themes play out. Beneath the rosy global economic surface lies a shifting and nuanced global growth mix. Adopting a country-level focus may help investors better exploit shifting growth dynamics.

We highlight four macro themes to watch:

  • EM early innings: For higher exposure to global growth, look for countries benefiting from robust global trade, such as Japan, Taiwan, Korea, and China, as well as those with improving domestic economies such as Brazil, India, and Indonesia.
  • Growth spillovers: Growth is synchronized, but output gaps are not. Strong DM growth is likely to spillover to trading partners. With the United States and Europe driving growth and China slowing, we favor non-commodity EM exporters, DM countries tied to global CAPEX cycles, while remaining cautious on capital dependent countries, such as Turkey, in case DM economies heat up faster than expected.
  • China’s rebalance: For relative value investors, China’s shifting growth mix – away from the “old” commodity-intensive industries and towards the “new” tech and consumer focused industries – will be heavily felt along commodity vs. non-commodity lines. Investors may consider countries better positioned for China’s new economy, such as northern EM Asia countries and avoiding commodity exporters.