The Worst Is Likely Behind for Emerging Markets

Despite a confluence of unprecedented shocks, emerging markets (EM) have shown resilience, with few signs of a broad-based crisis. As an asset class, EM appears to be positioned for stronger performance. High EM real – or inflation-adjusted – rates buffer the spillover risks from further U.S. Federal Reserve (Fed) interest rate hikes and the effects of the strong U.S. dollar. China’s economic reopening provides a tailwind, and the peaks in inflation and fiscal pressures appear to have passed. Structural forces such as deepening local markets and nearshoring support EM fundamentals. The magnitude...