Global investors are currently dealing with two key challenges: find decent yield for their fixed income portfolios in a world of ultra-low or negative interest rates and access some exposure to growth at a reasonable price. EM market assets may offer some opportunities in addressing these challenges and have the potential, in our view, to outperform other asset classes both in equity and fixed income in 2021.
However, investors should be aware of the heterogeneity of the EM universe and the transformation occurring in EM. Each country has specific drivers, monetary and fiscal policies, and political landscapes. In a world of retreating global trade, domestic growth drivers are becoming increasingly important. The role of China and Asia in the geopolitical order, as a global growth engine and new centre of gravity, became even more significant in 2020, with Russia willing to play a stronger role as well.
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