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From here onwards, the diverging trends in many economies of the world will become ever more pronounced. Europe, it seems, has found a self-help story with its recovery fund. The European Central Bank even shrugged off currency strength in its meeting last week. No more ‘beggar-thy-neighbour’, currency-debasement-style European policies for now. By contrast, the Anglo-Saxon world is printing money on all cylinders. The masters of money in the US and the UK are filling in for the missing support from politics. The US is in election campaign turmoil; there seems to be no clear consensus on continuing the crisis funding for the unemployed. In the UK, there is the risk of a no-deal Brexit due to a desperate move to push the line in negotiations with the European Union.

The euro will likely strengthen both against the US dollar and the British pound for the time being.

Christian Gattiker, Head of Research

Despite all the money printing in the industrial world, emerging markets cannot capitalise on any of these money flows. Rather, they are still caught in crisis-fighting mode, with Argentina and Turkey as examples. Both countries are still in the midst of an uphill fight against deteriorating fundamentals. While Argentina is already in a debt-restructuring mode, Turkey is in a maelstrom of debt downgrades.

In terms of investments, we see a lot of the divergences driving currency and bond markets. While euro strength may seem to be extended, we expect it to last unless the European Central Bank chooses to join the ‘inflation overshooting’ camp like the US Federal Reserve. Thus, the euro will likely strengthen both against the US dollar and the British pound for the time being. As for stocks, we still see good opportunities in certain sectors, such as communications, where the crisis has greatly accelerated persistent trends due to consumers rapidly changing their behaviour.