We expect a staggered global recovery, as different regions were affected by COVID-19 at different times. China was the first to enter, first to exit, and the US recovered later (peak quarterly GDP growth was higher in Q2 2021), followed by Europe (peak quarterly GDP growth in Q3 2021) and, finally, emerging markets ex-China, all in conjunction with the easing of COVID-19 mobility restrictions.

An exceptionally strong US has been the driving force behind global equities for much of the year, and now we are seeing Europe catching up. JP Morgan's global market strategists believe that, although Europe's path has been difficult, the region is on track to become a complementary engine to the US, driving a broad-based global growth boom by mid-year. With mobility remaining stable and vaccine rollouts accelerating in Europe, the bias is once again for current quarter growth forecasts to be upgraded as more activity returns.

In previous editions, we have highlighted our preference for European equities within developed markets, given their more cyclical and value-oriented sector composition. Is EM next in line? As vaccinations ramp up and reopening occurs, emerging markets are expected to reestablish their GDP growth premium over US GDP by 4Q21 and thus resume superior equity performance.

All in all, we continue to overweight emerging market equities in our global asset allocation, based on the following factors:

• Rising commodity prices serve as a tailwind for commodity exporters in emerging markets through improved terms of trade, stronger growth, and thus improved fiscal and current account balances.
• Capital flows to emerging markets have remained healthy, and emerging market currencies have appreciated this quarter. To a large extent, this outcome is linked to optimism that EM virus containment and vaccine rollouts will follow Western Europe's lead and achieve a strong rebound in the second half of 2021.
• This view is incorporated in the fact that GDP growth in emerging markets, excluding China, will rise from -3.1% this quarter to 6.5% in H2 2021, according to estimates by J.P. Morgan.
• Emerging market valuations are cheap and are trading at a wider discount than historical levels relative to DM. (30%)
• FX should provide a tailwind due to the expected weakness of the USD.
• Emerging market equities should be a regional beneficiary of investor rotation into cyclical and value assets.