In 2018 and 2019, the Emerging Market world seems to be moving into a growth phase that is, for the most part, setting up for a dramatic slowdown. As global growth slows (we have put together a series of articles in this slowdown since October 2018), the EM- world growth story starts to fade. In January, the IMF brought its EM growth forecast down to 4.5 percent, the second year running that growth is slowing.
]This seems fine until we start to look at the UBS story which points to the EM world slowing to 2.9% GDP in the fourth quarter of 2018. Note that the post 2008 crisis growth average has been 5.6%, so the 2.9% call by UBS indicates that things are turning worse, much worse.
So one would think that this is a story of weakness and doom. However, it is relative, as the developed-world economies are seeing a slowdown much faster than the EM economies. With deceleration in the EM world less pronounced, the view by some market professionals is that the emerging market currencies are undervalued agains the US dollar. This is one factor that is worth noting for those longer-term investors.
Developed markets are now slowing with Europe showing some signs of weakness as Germany and the US face off on trade issues. This brings the Trump factor into the conversation. If the US Bretton-Woods system is breaking down and the US President is forcefully driving the process faster, the EU, and Far East slowdown could be more pronounced. More on this EM vs DM comparison in the coming weeks.