Obviously, at the tail end of last year, all markets globally suffered. But in fact, emerging markets did quite well in that period. And then, through the beginning of this year, there's been quite a substantial rally in emerging markets, in particular for China (the MSCI China A Index returned 30.94% as of 3/29/2019).
I think one of the reasons has been that there's been a series of what I call blinking among central banks. The PBoC (People's Bank of China), has instituted a number of measures in terms of monetary management to help the economy. There's been a number of fiscal movements from the Chinese government in terms of personal income tax cuts, VAT cuts and so forth, and a number of regulatory forbearances as well.
That cumulative effect is starting to improve confidence in China. But we've also had the U.S. Federal Reserve (Fed) changing round their view. It's a little bit fluid, let's say, in terms of their stance. They have definitely moved to the dovish side, probably too dovish just now, but in any event, that's been good for global markets.
Ultimately, the ECB (European Central Bank) is getting a little bit worried about what's happening there. So, global liquidity seems to have turned, central bankers seemed to have blinked, and the measures that have been taking place in China are starting to have some impact. It's going to take a little bit longer. It's going to be a little bit harder to do because the economy's so much bigger, because there is more leverage in the economy. But it is starting to happen. So, within emerging markets, which have had a good start to the year, China's actually done very well.
Brazil was a standout in the second half of last year because the new president gave people a lot of cautious optimism about the economy going forward, which has been through a pretty brutal time, and cautious optimism about dealing with the entitlement reform, the social security reform, that needs to take place, pension reform and so forth, in Brazil. As time's gone on, it's clear that in some elements of the economy, it's been more of the caution than of the optimism. There's been a chipping away at the original proposals for these reforms. We still think an element of it's going to happen. We hope it's not going to be watered down. We hope it's not politics as normal in Brazil. I think the jury's still out to some extent about that. Brazil still looks, for the time being, fine, but some of the gloss has been rubbed off a little bit.
For India, the key thing is elections coming up. We believe that Modi has done a lot of good things in India. The demonetization, the personal identification numbers, the recapitalization of the banking sector, the improvement in the resolution system for bad debts. These are all generally pretty good things, but the problem with India has been that there's been some pretty aggressive earnings revisions downwards generally. So, whilst India hasn't really performed particularly well on the upside, depending on where you start, it's been in line with other emerging markets, it's now become more expensive because of the earnings downgrades. Typically, it trades at a premium to the rest of the emerging markets, let's say a 25-35% premium on a forward earnings multiple basis. But when you look at it now, that did move up to about 60-65% premium. It's moved in a little bit.
Foreigners have actually not been buyers of India, not for the last three years, so it's been driven by local money. Valuations are not particularly appealing, but we do like some of the things that Modi's done. There is a certain amount of uncertainty about what is going to happen with elections, so I think we probably need to see either prices come down, or some more clarity on who's going to be governing going forward to be more aggressively positioned in India.
The rest of the year, I think, is reasonably constructive. There is some concern globally about what's happening with trade; physical trade has obviously been very, very weak. Now, a so-called trade deal might alleviate some of that. There are tentative signs, straws in the wind maybe, I don't know, of a stabilization in some of the big, developed economies, but there's as many signs of more weakness as well. The liquidity situation is better, but concerns about actual growth globally could weigh upon the rest of the year.
That being said, we can be a little bit more confident that we're further into the cycle of stabilization and remediation measures... we can see it in China. In that respect, it's going to be where the hope lies. At least in the first instance for a lot of the better times in global economies.
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