For most of last year an angry US bond market took the sword to emerging market assets. But now, enamoured of the Federal Reserve’s newly confessed flexibility, the hope of trade rapprochement and easing from China, many investors are wondering if, similar to 2016, policymakers have underwritten them again. We doubt it. These perceptions can aid a relief rally in the near term, but there really is not enough policy fuel in the tank this time to drive structurally stronger emerging market returns.

The force that calmed the US bond market is weaker global growth — EM’s true pressure point. Even though it does not precipitate as dramatic sell-offs in fixed income as does a sharp rise in US rates, lacklustre growth is the reason behind the decade-long, slow-burn underperformance of EM currencies and equities. This challenge is now intensifying. UBS’s nowcast models show sequential EM growth had dropped to just 3.9 per cent at the end of 2018, not far from the lowest levels in the post-crisis era. Export orders for the large trading and manufacturing economies of Asia and Europe signal a coming trade recession. It is unlikely that a truce in the trade war, even if we were to see it, will prevent this.

Weak external data does not seem to be driven by higher US tariffs. In fact, the US is the only region where import volumes have remained consistently strong. Europe has been very weak but, largely because of declining demand from China, the real source of growth angst. The primary drivers here are policy and regulatory efforts to rein in the economy’s credit dependence. That the trade war has been a secondary influence thus far is also evidenced by the underperformance of domestically oriented Chinese equities. A potential reversal of protectionist rhetoric will certainly be a strong positive catalyst for EM risk assets, but to sustain a rally we would need to see a turnround in domestic confidence in China, which has required increasing amounts of policy help through the cycles.