The relative performance of EM equities compared to DM equities is partly due to the expected GDP growth differential. The outlook for EM equities based on this metric looks pretty solid, as the IMF expects the EM-DM growth differential to widen next year and in 2021. There is one caveat, however. IMF GDP growth forecasts are error prone, and this year is no exception. Instead of widening already somewhat this year, the IMF now expects the GDP gap to decline for the fourth consecutive year.
For next year, the odds are higher that emerging economies will increase relative to developed economies. But it will take more Federal Reserve easing (we’ll know more later this week) and a weaker US dollar (still stubbornly strong) to increase my conviction that EM equities will beat DM equities.
