After slowing in 2012, growth in emerging markets is expected to accelerate to 5.4% in2013, more than four times the estimate for developed markets
The outlook varies significantly by region with Asia, led by China and India, expected to
grow 6.6% and Central Europe 2%
Monetary policy in emerging markets remains accommodative and emerging marketsretain policy flexibility. However, economic activity in emerging markets is closely linkedto global trade, commodity prices, and financial conditions. A disorderly default/financialcrisis in the Eurozone will inevitably impact emerging markets.
Risks to global economic activity remain to the downside, but QE3 and OMTs haveplaced a support on asset prices
At roughly 10 times 12 month earnings current emerging market valuations are notdemanding. Assuming a ten year average forward p/e of 10.7 current valuations
anticipate a further 7% in 2013 EM earnings downgrades. Flows to emerging assets of
all kinds are likely to accelerate and investors should continue to reduce the home bias.