11 June 2021
It was certainly a game of two halves for EM over May. The first part saw the EM index fall -4% by 12 May however, from this low point the EM index began to recover, rising +6% from 12 to 31 May. This was triggered by COVID case numbers declining in India, positive data on global growth and a weaker USD, which encouraged capital flows back into EM equity and debt assets.
After a dramatic period of policy rate cuts in 2020 (in the wake of the COVID-19 growth shock), 2021 has seen more countries raising rates than cutting. Over May there were three countries that raised policy rates on a net basis. We continue to ask the question; is this a sign of more widespread inflation and policy rate tightening to come?