Global: Growth steady, inflation fading, and liquidity picking up => bullish EM assets

Favorable liquidity, the balance of growth shifting from the US to non-US economies, and strong YTD momentum point to continued outperformance for EM equities this year.

Our diffusion of leading inputs suggest surprises will tilt positive for growth and and negative for inflation over the next six months.

The growth-inflation backdrop is especially favorable for EMs. Our median EM growth LEI continues to edge higher, and most EM inflation LEIs are now lower than a year ago. By contrast, the median DM growth LEI has stalled, and most DM inflation LEIs are higher than a year ago. (See here, here.)

Generally lower inflation will allow continued monetary policy easing and be a tailwind for risk assets.

Real M1 growth – another key measure of liquidity – is rising globally and faster in EM than in DM economies. In turn, this triggered our EM Regime Indicator to favor EM over DM equities for the first time since 2018.