Emerging Markets Equity: Catalysts for Stock Market Leadership Transition

Plague, War, Famine and the Fed

The world is in a very different macroeconomic position today compared to the prior forty years. From 1980 to 2020, investors benefited from a benign ‘Goldilocks’ environment where GDP growth was above trend while inflation was below trend. In future, the macroeconomic environment will be more challenging, in our view, given structurally higher inflation triggered by a combination of:

a. Elevated debt levels that will make positive real rates challenging.

b. Structural underinvestment in energy that will constrain the supply response.

c. The inflationary impact of policies to reverse inequality.

d. Increased regulation for technology and consumer companies erodes their deflationary qualities.

In our view, this new macroeconomic paradigm will lead to a leadership transition in equity markets with a significant rotation to Emerging Markets. The asset classes’ advantage will be triggered by four catalysts, namely: Plague, War, Famine and the Fed.

This paper is based on a webinar discussion between Fernando Assad, Chairman of Ashmore’s EM Active Equity Strategy, and Gustavo Medeiros, Head of Research.1

Stock market leadership transition

Catalyst 1

Covid risk premia reversal (Plague)