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EM quarterly growth highest in two years

The last three months have seen the largest increase in emerging market growth since 2014, while May saw the largest monthly advance in four years, according to data released by the IIF.

Jul 13, 2016 // 11:51AM

Real GDP growth across emerging markets rose by 0.3% to 4.7% in June, and which according to the IIF’s estimates will put Q2 2016 emerging market growth at 4.1% year on year.

The organisation said a stabilisation in the price of oil – despite recently hitting a two-month low - provided a strong tailwind for its growth estimates, while PMI indicators strengthened for a number of key EMs including Russia, Taiwan, and China.

Brent crude recently slumped to $46.25 per barrel while West Texas Intermediate (WTI) dropped to $44.76 per barrel, according to data from Reuters.

Trade was a particular source of weakness this quarter as India, Mexico, and Thailand all saw negative trade flows, while Latin America’s performance was adversely affected by a further deterioration in Brazil and Venezuela.

John Peta, Global Head of Emerging Market Debt at Old Mutual said the strong performance seen over the past few months – and the subsequent rally in emerging market assets – is largely down to the fact that many of the risks previously weighing on EMs have begun to ease, and because DM-centric risks are starting to weigh more heavily on investor sentiment.

“The risks presented to EMs over the past couple of years – lower commodity prices, the CNY depreciation, Fed tightening, and continuous growth downgrades – are dissipating,” he said.

“At the same time, Brexit and fears around European stability are starting to weigh on the developed market and have pushed DM yields lower. And while we are still in a goldilocks environment, investors are searching for yield.”

“US equities are fully valued, developed market asset rates are at multi-year lows and often negative, so emerging market debt stands out as great opportunity.”

At the same time, markets seem to be showing that the emerging market debt rally is starting to fade, with Bloomberg USD Emerging Market Sovereign Bond Indexes and Bloomberg USD Emerging Market Corproate Bond Indexes all flatlining this week. 

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