In celebrating Columbus’s discovery of America it is important to remember that it was his quest for a shorter trade route from Europe to Asia that led to its discovery – forever transforming the old world economic order and laying the ground for globalization. In it, America became the new emerging market (including extensive gold discoveries) eventually surpassing Europe’s developed markets. Similarly, today emerging markets led by China are surpassing developed markets ex US centered in Europe and Japan, as measured by the MSCI Emerging Markets and EAFE equity indexes, respectively. Meanwhile gold remains a safe haven driven recently in large part by easy monetary policy around the world.
The question going forward is how do the convergence of Brexit and eventual tightening of monetary policies impact these markets? While Brexit unquestionably favors Emerging Markets over EAFE, tightening monetary policy likewise favors growth driven Emerging Markets over gold. (See our previous features – The Mighty US Dollar and What Price Insurance?).
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