Global central banks have stopped easing, with tightening likely to follow. Is the time to invest in EM behind us, or can these markets thrive as monetary conditions tighten? Ricardo Adrogué, head of Barings' Emerging Markets Debt Group, weighs in.
Global central banks—the U.S. Federal Reserve (Fed), the European Central Bank
(ECB) and the Bank of Japan (BoJ)—have stopped easing. There is little doubt that monetary policy tightening will follow. Only the pace is uncertain. The question now is, can emerging markets (EM) thrive when global monetary conditions tighten? We believe the answer is yes.
Have global monetary conditions really been that easy?
Since the Great Financial Crisis (GFC), a large number of economic commentators have confused central bank action with global monetary conditions. While there is no doubt that central banks have eased money aggressively post 2008, it is less clear that global monetary conditions have actually been easy. In fact, if one judged global monetary conditions by the global supply of money aggregate (M2), one could argue that global monetary conditions have been tighter following the GFC than they were before. Global M2 growth has fallen from 9.5% per annum from 2005–2008 to 6.3% from 2009–2018. Using this method, it is not surprising that global inflation has been so well behaved.