Emerging Markets Equity Commentary | Q3 2019

Quarterly Letter

The global economy continued to slow during the third quarter, as trade tensions remained high and geopolitical risks escalated.  With limited prospects for a comprehensive trade deal and reacceleration in global trade, emerging market policy makers have been pulling the traditional policy levers to confront stagnating growth.  A moderating inflation outlook lowers the risk of capital outflows and downward currency pressure, allowing central banks to join the synchronized monetary easing well underway in the developed world.  Manageable government deficits have also cleared the way for more fiscal stimulus and targeted tax breaks to spur domestic consumption.  A third front, and one that stands to pay longer-lasting dividends, is the implementation of structural reforms, such as the pension restructuring and state owned entity (SOE) privatization initiatives in Brazil and the income tax overhauls underway in India and Indonesia.  Against this backdrop, we have been concentrating the portfolio’s exposure to companies with well-fortified balance sheets, steady cash flows, and valuation support.