Since the global financial crisis, US markets and the economy have outperformed peers as a more aggressive and timely policy response helped address the banking system and mitigate (temporarily) a structural growth problem. It has been our view for the past few months that we would now see an end to this strong relative performance. Put simply, the US is later cycle and more expensive than most other regions. In this sense, the year has gone according to plan. Volatility has increased and US equities and bonds have weakened, whilst markets such as Brazil and Egypt, in the early stages of an expansion, have prospered. Moreover, we have seen the first signs of uncertainty in the technology sector, the most overweighted and highest multiple/growth-oriented area of the market.
However, not everything has gone according to script. Last week, Donald Trump escalated his trade attack on China. There is clearly still room for negotiation, but also now a concrete risk of a full-blown trade war between the two biggest economies on earth. This is of course important, both tactically and (potentially) fundamentally, but it does not change our “top picks”, Latin America ex-Mexico, Egypt, South Africa and India; domestically focused economies that are still in Goldilocks territory, enjoying the lagged benefits of monetary easing and reform.DOWNLOAD THE FULL ARTICLE View All Global Market Updates