Global monetary indicators have weakened further over the last three months and are signaling a slowdown in economic momentum during H1 2022 along with a loss of “excess” money support for markets. 

Emerging market equities could show relative resilience despite this backdrop as Chinese stocks recover in response to monetary improvement and an easing of regulatory concerns. 

Global six-month real narrow money growth fell significantly during 2021 and typically leads the global manufacturing PMI new orders index by 6-7 months, suggesting that the latter will weaken into mid-2022 at least. 

An easing of supply constraints in late 2021, meanwhile, contributed to a pick-up in global six-month industrial output, resulting in the real money / output growth gap turning negative – historically a warning signal for equity markets. 

The suggested scenario of a prospective economic slowdown with tighter liquidity would normally be unfavourable for EM equities. However, China-specific factors resulted in EM underperforming in 2021 despite a supportive global economic / liquidity backdrop and the reverse could be the case this year. 

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