Schroders' Conway: Can the GEM rally continue?

ON EMs

Global stock markets have rallied since the fourth quarter of 2012 as tail risks have diminished. However, while the rally may have further to run, its longevity remains questionable as many of the structural challenges facing the developed world remain largely unaddressed.

Global emerging markets (GEMs) outperformed developed markets in 2012 and, based on still reasonably attractive valuations and superior fundamentals, they look well placed to continue to do so over 2013. GDP growth in GEMs remains reasonably robust and is forecast to improve from 4.7% in 2012 to 5.2% in 2013. Furthermore, with inflationary pressures reasonably muted there is room for monetary stimulus in the emerging world if growth disappoints. GEMs remain structurally strong and do not face the debt overhang or deleveraging necessary in the developed world, so further fiscal stimulu...