The Shanghai stock exchange is down almost 15% this year, shortly after much-touted measures of opening-up to foreign investors.  The Chinese yuan has depreciated. Trade tensions following the announcement of tariffs by the Trump administration continue to escalate.  These developments have taken a toll on other emerging markets, making emerging market equities one of the worst performing asset classes this year. 

As the Q1 earnings season draws to a close, investors were left with a mixed picture. While the S&P 500 earnings per share (EPS) growth was on average 25% with over three quarters of the companies beating analysts’ estimate, the index edged up only 50bps since the start of the season on April 13th.

The reasons behind this inconsistency are multi-fold:

The divergence between positive economic data and negative policy news is rarely as wide. While the global economy continues to grow at a healthy pace, many of the policy risks we’ve been highlighting have either increased or materialised.