The Intelligence Report – 31 July 2017

31 Jul 2017

  • Looking beyond the rear-view mirror – reviewing the structural reform and macroeconomic policy initiatives over the past three years under the Modi administration.
  • Will China’s new political top table be more reformist? – considering likely changes in China’s Standing Committee of the Politburo, and implications for structural reform in China.

Emerging markets, both equity and fixed income, have performed strongly this year, reinforcing the recovery seen since early 2016. We remain positive on emerging markets (EM) as an asset class, both in terms of beta and also as a source of alpha, given its heterogeneity and accompanying potential for idiosyncratic risk. The ability to embrace structural reform is expected to be one of the drivers of relative performance over the medium and long term.

Both of today’s articles deal with structural reform. In the first article, Anand Shah reviews the structural reform and macroeconomic policy initiatives over the past three years under the Modi administration. In the second of our articles, Chi Lo considers likely changes in China’s Standing Committee of the Politburo, and the implications for structural reform in China. While Indian markets have already benefitted significantly from investors’ appreciation of the initiatives implemented over the past three years, Chinese assets have lagged other EM assets considerably until recently, and could benefit meaningfully in the longer term if reform accelerates next year and beyond.

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