While the continued weakness in the Chinese market continued to pressure the EM index, the other EM equities managed to mount a comeback driving the wide market index up. The ASEAN and Indian markets in particular did well with improving market sentiments, despite the ongoing threat of COVID. Over the month, the MSCI emerging markets index gained 2.42%, while the FTSE ASEAN 40 Index was 5.31% higher.
The economy in some of the markets continued to bounce back, notably in the ones that did not suffer from the ongoing pandemic, the Indian market among them. However, we remain relatively sceptical over the EM outlook. As repeatedly mentioned, the few factors that contribute to the heightened risk in EM markets, including epidemic control, vaccination progress, inflation threats, and mounting external debt, remained true, which we still believe would undermine the performance of EM equities compared to their DM counterparts.
Although there has been COVID resurgence in some of the DM countries, the improving vaccination progress would likely suppress the further spread. A near ‘herd immunity’ allows economic activities to return to normal, and this exactly is one of the biggest divergences between DM and EM. On contrary, vaccination progress in EM countries remain sluggish, possibly due to supply bottlenecks. The rate hikes by EM central banks so as to counter the heightened inflation also serve as headwinds for equity performance. Although there has been recent EM recovery, we will still prefer DM equities over EM in the medium term..
