While the rebound in EM equities were formidable, we stand by our view on the DM EM divide. We still see DM equities outperform EM equities over the next few months and for the whole year. The factors we see leading to the DM EM discrepancy has not dissipated, as the risks arising from the slow vaccination progress, mounting external debt, and inflationary risks still looms on the horizon. With the significantly higher exposure to such unhedgeable risks, we find it difficult to make a case for investing in in EM equities at the moment.

One of the key factors lies in the epidemic control, one area which we find the DM economies is doing manifolds better than EM. As EM vaccination progress remains largely lagging behind DM economies, a true reopening is still out of the question, future flare ups can also cause serious disruptions to normal economic activities, as illustrated by the recent outbreaks in Vietnam and Taiwan. Although WHO’s recent approval of additional vaccines for emergency use could help alleviate some of the vaccine supply issues, we still see the outlook of EM as less attractive than their DM counterparts. As fundamental issues are yet to be resolved, we maintain our view of DM over EM in the short to mid-term.