Don't get carried away with emerging market growth prospects, Citi says

Strategists at Citi advised clients to treat signs of stronger activity among emerging market economies with caution.

Not only was it not broad-based, it was also in large part a reflection of the end of deep contraction in Brazil and the Russian Federation, together with the stimulus carried out in 2016 by the People’s Republic of China.

Furthermore, “the ‘bigger picture’ facing EM is heavily influenced by state of collapse in global trade,” strategists David Lubin, Dirk Willer and Johanna Chua said in a research report sent to clients.

In that regard, they pointed out how the rate of growth in global trade volumes was essentially zero in the first six months of 2016 – something usually not seen outside of recessions.

Also on the positive side of things, they said they could point to ‘risk’ having decreased and ‘returns’ rising since the 2013 ‘taper tantrum’.
Hence, they remained ‘bullish’ on emerging market credit and on the commodity-related currencies whose central banks had won inflation-fighting credibility.

“But we think the case for enthusiasm about EM has little to do with growth,” they said.