today by Fidelity Economist, Anna Stupnytska, to talk about emerging markets.

Hi, Anna.

Hello. So, in the news a lot at the moment is the

U.K. and Brexit and investors may have missed that there actually has been a pretty positive

story coming out of emerging markets in 2016, including positive data like the one we had

this morning about house prices in China. So, how has this outperformance happened?

Well, this year emerging markets outperformed massively in all asset classes and that was

mainly due to some stabilization in China due to the fiscal stimulus unveiled at the

beginning of the year, also stabilization and some rally in commodity prices obviously

related to China in some respect and finally, the ultra-dovish monetary policies by the

major central banks with the Bank of England embarking on a new round of quantitative easing.

And of course, investors love a positive news story. There haven't been many of those about

recently. So, the big question is, is this rally sustainable?

Well, I think those three factors will determine whether the rally is sustainable or not because

the recovery itself in emerging markets is not really so strong. If you look at the data

across all EMs, fundamentals are still relatively weak. There are very few countries that are

bright spots; like India, for example, is doing quite well; Mexico has been doing okay

but it's actually now being affected by the U.S. presidential elections campaign. So,

it's very hard to find those countries that have been doing strong.

So, looking at these factors, I think commodity rally is probably close to an end at this

point. I think China is quite strong but the fiscal stimulus is likely to be withdrawn

again at some point in the coming months because China is on a slowdown trajectory. And finally,

in terms of the monetary policy, global monetary policy, I the Fed will hike rates and that

will tighten global financial conditions. So, I think we should be cautious when we're

thinking about this outperformance going forward.

And just to your last point, a lot of people don't understand how the decision that the

Federal Reserve makes in the U.S. affect global markets and indeed, especially emerging market

equities and bonds.

Stupnytska: Well, as I said, emerging markets have benefited massively from ultra-dovish

monetary policy, very accommodative global financial conditions. Of course, the hike

by the Fed will tighten global financial conditions and so that search for yield environment that

all emerging markets have benefited from over the past two years will be coming to an end

and so we might see some reversal in capital flows making many emerging markets quite vulnerable

to this environment of tighter financial conditions.

Anna, thank you very much.

Thank you.

This is Emma Wall for Morningstar. Thank you for watching.