4) The Surge of Inflows to Developing Nations Isn’t Sustainable

THE CONCERN: As the Federal Reserve raises interest rates, emerging markets will see capital outflows.

THE REALITY: Emerging-market funds have attracted net inflows for three months straight this year as U.S. President Donald Trump’s fiscal stimulus measures were put on hold and the Fed signaled it will raise rates gradually. That suggests that investors are well aware of the outlook for U.S. borrowing costs, but are finding other reasons to be bullish on emerging markets.

WHAT’S NEXT: It’s possible that interest rates in developed markets reach a level that causes investors to reconsider their love for emerging markets, but it hasn’t happened yet. David Woo, the head of global rates and FX strategy at Bank of America says that while more money can certainly flow in, investors should be cautious.

“At this point you want to sit as close as possible to the back of the cinema because if there’s any scare or panic, people are going to be running for the door,” Woo said in an interview on Bloomberg TV on April 25.

5) Trump Is Bearish for Emerging Markets

THE CONCERN: The so-called “Trump Trade”—betting on faster inflation and higher corporate profits—has made emerging markets unattractive relative to U.S. assets

All you wanted to know about this thing called “Trump Trade”

THE REALITY: Investors have scaled back their initial optimism over Trump’s spending plans and tax cuts as the president stumbles in his initial efforts to push through his policies. As the outlook changes, short traders have cut more than a $1 billion of bearish bets against a bond ETF focusing on developing countries.

WHAT’S NEXT: Treasury Secretary Steven Mnuchin said Wednesday that the Trump administration will propose a corporate tax rate reduction to 15 percent and lawmakers are broadly in agreement over tax reform. The proposal could be a boon to corporate profit and reignite the idea that the U.S. is the better destination for investment. But we’ve seen other announcements of this kind ultimately lead to disappointment.