Sentiment has turned against EM assets

Sentiment toward EM assets has turned negative over the last month despite the relatively upbeat performance of many developed markets. Equities have come off recent highs, currencies have mostly depreciated against the US dollar and EM sovereign bonds, one of the best performing asset classes of last year, have given back some ground. One reason could be that investors believe quantitative easing in the US, which provided a boost to risk assets, is on borrowed time. However, economic indicators also justify a change in mood. Growth in the emerging world has weakened, with some of the shine coming off the EM consumer story. Overall, developments this month serve as a reminder that the recovery in emerging markets is not built on solid ground.