Emerging Markets

Investors should modestly underweight equities in their portfolios and look to turn more aggressively defensive once the whites of the recession’s eyes are visible. We think that will happen within the next few months.

Dilution is one of the two main reasons why EM EPS has been much weaker than EM GDP and EM non-diluted profits. We calculate “pure” dilution – adjusted for companies’ inclusion and exclusion from the stock index – for various bourses around the world. To our knowledge, this is the first time this analysis has been conducted.

Investors should hold gold, build up some cash, tactically overweight US equities relative to global, and prepare for at least minor oil supply shocks – possibly major shocks – as the Israel-Iran war escalates.