EM Growth Tracker at 3.9% 3m/3m sa ar in November. Decline driven by hard data but offset by improved corporate sentiment. Trade volumes improve, but internal demand is still weak. LatAm and EM Asia trackers decline.

Sanctions depressed capital flows to Russia. Despite banks losing much foreign funding, domestic credit in local currency revived, and lending rates normalized in due course. High reserves cushioned the cost of sanctions, as did robust oil exports and low external debt.

Tighter financial conditions, yield curve inversion prompt more bets on a Fed pause. Equity analysts revise down 2019 earnings forecasts; banks underperform. Sharp rebound in EM portfolio flows in November; EM oil importers see the benefit of lower prices. Tax revenues at very high levels—but are governments using them effectively? 

Activity in China is cooling more than GDP suggests, but exports are not the main driver of the slowdown. Tariffs will eventually have an impact on the economy, that we quantify in a simple model of import demand. Growth would fall modestly in a détente scenario, but could drop by 0.5-1pp if trade tensions escalate.

Ongoing geopolitical tensions have created headwinds, but Qatar’s economy has shown signs of resiliency. We expect growth to accelerate to 2.9% in 2019, driven by natural gas production and public investment. Exiting from OPEC sends a symbolic message that the country wants to chart its own course. 

Emerging markets saw portfolio inflows of $33.9 billion in November, the strongest inflows since January. Our broader measure of net capital flows remained negative in October, driven by outflows from China. 

2018 has been a difficult year for many emerging markets, but sentiment has recently shifted more positive in many cases, reflecting cheap valuations, a dovish Fed, and a China-US trade “truce.” With sentiment more positive, market focus is squarely on positioning, with people asking how much positioning was cut during the EM sell-off. We develop new data that give a comprehensive look at EM positioning, combining IIF work on capital flows with valuation changes on the stock, where the latter historically account for the bulk of positioning changes.

Equity market volte-face highlights renewed concern about U.S.-China trade tensions; Pace of decline in global central bank asset purchases accelerates; High debt-to-cash levels in the corporate sector—another sign of trouble for credit markets; Carry trade returns still generally sub-par, but looking more attractive for a few emerging markets