The epidemic situation in the emerging market countries is severe, and vaccination rollout remains sluggish. While emerging Markets managed to bounce back from the poor month of performance back in March, it still lagged behind global markets as existing problems continue to plague the market. Over the month of April, the MSCI emerging markets index gained 2.37%.
We still favour developed markets over emerging markets, mainly because of risks that will likely hold true in the future. The 3 main risks are still in play: vaccination progression is slow in emerging market countries, inflationary pressures continue to mount, and the current fiscal deficit will likely be unsustainable. These primarily affect emerging markets more, which would likely result in the DM’s future outperformance over EMs.
Furthermore, the worsening epidemic in emerging market countries seems to be back on the menu, as we saw record daily infection figures come out of India. This is likely inevitable as pandemic fatigue kicks in, but vaccinations in emerging countries have yet to cover the lost ground. To make matters worse, recent statements over the AstraZeneca vaccine painted it in a bad light by highlighting the risks of rare blood clots, possibly damaging the confidence in these vaccines, which were supposed to be the key for emerging economic to achieve herd immunity. This could have profound effects on the outlook of the EM economy, further solidifying our view of “DM over EM”.