Just as trade tensions relieve with the 1st stage Sino-US trade agreement, epidemic fears weighted down on emerging markets, the MSCI Emerging Market Index followed Asian trends and lost early gains in the month as the situation in China worsened, falling 4.69% over the month.
In line with our 2020 outlook on emerging markets, external shocks remained the key factor in EM performance. While trade barriers have decreased, the COVID-19 epidemic would likely dampen Chinese economic growth, reducing global demand, which might have a ripple effect on the global economy in 2020. EM economies which are often highly exposed to external markets might find rebounding the economy difficult in the short to mid-term.
As external risks mount, we would advise to take caution before investing in EM equities, although it is expected that EM economies should outgrow DM economies in 2020, the extent of damage caused by the epidemic would still require further investigation. Thus, we remain neutral on EM in the short to mid-term.
