A seven-factor checklist for assessing the relative attraction of emerging market equities is giving the most promising message since 2016. The table compares current judgements about the factors with the position in mid-2018, when commentaries here expressed caution about EM equities.

In addition to a favourable global monetary backdrop and improving economic prospects, EM equities are cheap, earnings estimates have held up better than in developed markets and commodity prices appear to have bottomed – see charts.

Surging US money growth, meanwhile, has quenched excess demand for US dollars, raising the prospect of a decline in the US currency – icing on the cake of a bullish EM scenario.

A much stronger monetary pick-up in the US than China explains a negative gap between E7 and G7 real money growth – the sole unfavourable checklist factor. The sign of the gap has correlated with EM relative performance on average historically but there is a case for downplaying the signal when money growth in the two groups is moving fast in the same direction. A similar set-up in 2009 – a joint surge but with the G7 leading – was associated with EM outperformance.

Within EM, markets that typically outperform in global economic upswings include Russia, Indonesia, Brazil and Korea. Money growth is strong in all four cases.

EM relative performance correlates directionally with the developed markets metals and mining price relative, with the latter often leading at bottoms and giving a positive signal currently – fourth chart.