Keith Parker, senior strategist, Barclays Capital
We still see some value in emerging-market equities, driven by better growth trends amid falling local rates. However, the Fed is normalising policy as growth data decelerates and China’s stimulus effects are fading. The variation in emerging-market equity yields is near post-crisis lows. Recent gross domestic product growth is also driving equity valuations, with a 43 percent correlation, but local real rates, currency valuations, current accounts and exports should matter for emerging-market country equities as risks shift. Equity markets in the Czech Republic, Russia, Hungary and, to a lesser extent, Poland are very cheap, and yet they have lower external vulnerabilities and higher purchasing managers’ index figures. Turkey has considerable domestic risks, but equity valuations are very low. It is the cheapest equity market in our sample, as well adjusted for the macro-risk premium. The largest equity-sector exposure is banks at 40 percent, followed by staples at about 15 percent.