Even though drivers in EM return remained intact, but downside risks have yet to subdue, the trade talk progression could prove to be detrimental to the year-end performance. Our overall EM outlook for the year remains neutral.

With the global inflation rate for major economies staying on the lower end apart from China, EM central banks have more wriggle room in taking advantage of monetary easing in supporting markets. As the trade war goes on, to insulate them from the trade war risks, EM economies are looking for alternative ways out to further advance economic development, mainly through governmental investment and internal consumption. As a recurring theme, we continue to see more non-monetary policies adopted to incite business investment and personal consumption. The Indian parliament just passed the Bill to officially cut corporate tax rates by 8-10%, which could drive the local economy in the mid to long-term by attracting more investments in the fastest growing Asian country.

However with political landscapes getting more complicated, radical reforms are also facing stronger headwinds than ever. In Brazil, the proposed reforms to the public sector and tax system were postponed due to the fear of public backlash, which casts a shadow over the economic future of the country. Other EM economies are also considering to adopt expansionary budgeting, deploying stimulus packages to counteract the effects of the slowing global economy. Other than that, as production lines consolidation continue, beneficiaries like Vietnam and Taiwan should continue to enjoy impacts of the trade war. Investors would need to exercise caution before investing in EM with the heightened risk in general.