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U.S. easing cycles historically impact emerging markets negatively, but could provide positive catalysts

2024-06-14 15:54:20.596000

Over the years, U.S. easing monetary cycles have had a mixed impact on emerging markets (EM). According to J.P. Morgan analysts, these cycles historically resulted in negative effects on EM equities, with only modest outperformance compared to U.S. equities. However, the Federal Reserve cutting rates can also serve as a positive catalyst for EM. It can lead to global growth, increase the possibility of countries easing their policies, and weaken the strength of the U.S. dollar. The J.P. Morgan team forecasts a slowdown in U.S. growth in the third and fourth quarters, with the U.S. monetary easing cycle expected to begin in the fourth quarter. The market consensus suggests 1.4 rate cuts for 2024. Despite the historical challenges, EM equities can offer diversification from U.S. equities, relative growth acceleration, attractive valuation, and macro conditions that challenge the strength of the U.S. dollar. It is important to note that emerging markets have experienced financial accidents and negative impacts during previous U.S. easing cycles, with EM equities having a small average outperformance compared to the MSCI U.S. index, while the U.S. dollar index recorded a decline on average. [53c0ee9e]

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