Our expectations are for developed market central banks to move cautiously, commodity prices to find a range and China to focus on stability over growth; all of which are conditions that support emerging markets (EM). Through a continued tightening of financial conditions, and a move to stem capital outflows, China has achieved stabilisation in its international reserves and exchange rate. While this prioritisation of stability over “growth at any cost” is critical for President Xi to advance a reform agenda, it has positive spillover effects for EM given the trade and financial links and the impact on sentiment and risk appetite.
What it means for investors
We think there are natural diversification benefits to investing in EM, and with a supportive external backdrop now may be a good time for investors to raise allocations. However, we believe it is critical to build portfolios that balance return on capital and return of capital.
This content is taken from Putting Markets in Perspective, a quarterly guide to the global economy and markets highlighting PIMCO’s current investment views.
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