EM Another Bullish Sign?

by Michael J. Howell12. December 2012 20:29

EM markets have out-performed on cue since the announcement of QE3. We maintain our view that 2013 will prove another good year, underpinned by the latest Fed announcement and by the visible pick-up in our indicators of EM Central Bank Liquidity. EM Central Banks remain 'tight' on our measures, but these indexes are definitively turning higher. Chinese PBoC liquidity injections have risen moderately but consistently every month since May 2012, and our index of EM Central Bank Liquidity stands at its highest level for a year and more than double its low point value. This is consistent with the monetization of renewed capital inflows: a feature consistent with QE3. Bottom line is that EM equities are highly pro-cyclical. With the Workd economy near a turning point in 2013 and policy-makers focussed on getting more growth not less inflation, EM will outperform.

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