The market narrative changed abruptly over the quarter, from observing the “melt up” in January with exceptionally low volatility, to a massive spike in volatility in early February with markets remaining on edge ever since. What happened?
The Trump reflation trade may have lost some of its shine during the quarter, but any disappointment was more than overshadowed by strong global data as exports and production continued to gather pace. In fact, fading enthusiasm for Trump’s ability to execute has arguably served as a tailwind for Emerging Market (EM) assets in the form of a weaker dollar and moderating long term rates.
Donald Trump winning the US presidential election delivered a big surprise, defying poll predictions but ringing consistent with the wave of populism sweeping the developed world. First witnessed early last summer with the Brexit vote, the rise of populism remains a key risk in Europe, while the implications for the shift in US policy are more likely to be mixed.
Emerging markets (EM) have endured strong adjustments in commodities and currencies that coupled with reforms makes a good case for better growth ahead. Still, it will take time for EM to navigate to more stable sources of growth, requiring relative stability through the delicate transition.
The UK's late June vote in favour of 'Brexit' was initially read as a deep negative, particularly given that markets were priced strongly in favour of a 'Remain' vote. However, after brief reflection, markets outside the region saw a rally, with risk asset performance more than making up for Brexit losses. Emerging markets have been a primary beneficiary...
2016 began in complete panic, with risk assets including emerging markets selling off deeply through the first few weeks of the year. This was then followed by the strongest rally since 2012.
In early 2016, hedge fund Nevsky Capital decided to call it quits after 15 years of successful asset management. One of the reasons for the closure is that since the global financial crisis, emerging markets are breaking away from the transparent 'Washington Concensus' model.