EM's outlook: what about the Fed? - BBH

Analysts at Brown Brothers Harriman offered their outlook for the EM's in reocvery post Brexit hysteria.

Key Quotes:

"After the Brexit-related plunge, EM has recovered nicely.  Besides the diminished Brexit concerns, the soft US economy has led many to dial back Fed tightening expectations.  Rather than the four hikes the Fed saw in 2016 when the year began, we will likely see only one.  Next year, markets are looking for 1-2 more hikes, which is still a very cautious tightening path.

A subdued Fed outlook has allowed EM assets to maintain traction after a rocky start to the year.  Until the likely December 14 Fed hike gets closer, we think the global liquidity backdrop remains supportive for EM.  Not only has Fed tightening been pushed out, but the ECB and the BOJ are still easing and may ease further.  

Whatever the pace and scope of Fed tightening is, we still believe it is very important for investors to continue focusing on the fundamentals and also on hedging out currency risk whenever feasible.  Regionally, Latin America is the best equity performer so far in 2016 (up 39.1%), followed by EMEA (12.6%) and then Asia (10.0% YTD).  We expect this performance trend to reverse a bit as we move into 2017."