Emerging markets have been attracting healthy investment flows into their stock and bond markets for much of this year and now data compiled by consultancy CrossBorder Capital shows the sector may be on the cusp of decisively turning the corner.
CrossBorder and its managing director Michael Howell say their Global Liquidity Index (GLI) — a measure of money flows through world markets — showed the sharpest improvement in almost three years in June across emerging markets. That was down to substantially looser policy by central banks in India, China and others that Howell says has moved these economies “into a rebound phase”.
This is important because the GLI, which has been around since the 1980s, has been a fairly accurate leading indicator, leading asset prices by 6-9 months and future economic activity by 12-15 months, Howell says:
Weak liquidity has been the key reason why EM shares have underperformed for so long. More liquidity may now allow EM markets to catch up.
The picture isn’t perfect. CrossBorder’s Global Liquidity index measures currently at 47.8, where a number above 50 denotes expansion. But the number in emerging markets was a still-low 24.1 last month, though it was 20.4 in May and is up 8 points this year.