Resurging credit growth will drive EM equities’ outperformance

Resurging credit growth will be the key driver behind Emerging Market equities continuing the outperformance that started two years ago, NN Investment Partners says.

The growth in EM ex-China credit, or the amounts lent by banks to companies, institutions and consumers, rose throughout 2017 from 6.8% in January to 9.4% in December, representing the first such recovery in more than six years.

Maarten-Jan Bakkum, Senior Emerging Markets Strategist, NN IP, commented:
“A clear recovery in credit growth – which has emerged in recent quarters – has always coincided with strong EM equity outperformance in the past. This credit recovery is the main reason why we remain confident that EM economic growth will keep its positive momentum and why EM equities will continue to outperform.”

NN IP notes that the last time investors were excited about endogenously-driven domestic demand growth in EMs was 2004-07. “Now we are seeing this theme come back again,” Maarten-Jan added. “There is room for credit growth to drive domestic demand in EMs outside of China.”