Focal Point The Fifth Element Renaissance Capital Investment summary 12 June 2017 The Focal Point No, we’re not referring to Quintessence, Boron, or the film by Luc Besson, or even the Daniel Salter album by Bounty Killer. The Fifth Element that we are adding to our top-down asset +44 (207) 005-7824 allocation model for emerging market (EM) equities is the interest rate cycle –
[email protected] alongside GDP acceleration, credit acceleration, real effective exchange rate (REER) Charles Robertson currency valuation and scope for credit rating upgrades. Vikram Lopez shows that interest +44 (207) 005-7835 rate cuts tend to coincide with periods of EM country outperformance (for more on this,
[email protected] see p. 77). Vikram Lopez +44 (207) 005-7974 EM equities are benefitting from global tailwinds which could continue through
[email protected] year-end – although following MSCI EM’s 17% US dollar return over the first five months Yvonne Mhango of the year, and with several global lead indicators having rolled over (albeit from strong +27 (11) 750-1488 levels), we would expect the pace of returns to slow and to be interspersed with
[email protected] occasional profit taking. The eight-year bull market in developed markets (DM) has been Oleg Kouzmin a pain trade for a sceptical investor base, and we see EM’s 18-month old bull market as +7 (495)258-7770 x4506 having similar characteristics.
[email protected] Despite strong performance YtD, EM equities have yet to fully close their US Research analysts election-related underperformance vs DM.