The following is an excerpt of remarks made on August 30, 2016.

The majority of the improved outlook and positive returns we’ve seen year to date in emerging markets equities has been driven by external forces (i.e., stability in DM FX rates), which has provided demand for higher-yielding EM assets. However, we also see an inflection point in many countries that provide a fundamental narrative to an EM recovery.

While the emerging markets rally year to date has been skewed toward fundamentally weaker economies, we are beginning to see countries that we believe to be further along in reforms and fundamentally more sound begin to outperform. A lower interest rate, lower growth, stable dollar environment has the potential to persist, we believe. Such an environment may provide weaker markets time to implement reforms and a tailwind for those further along in the process.

Below we use several graphs to tell the story.

A Supportive Backdrop

The easing of the U.S. dollar appreciation together with stabilization in global commodity markets have provided a supportive backdrop for emerging markets.

Cooling inflation in emerging markets this year—net 20 interest rate cuts across emerging markets to date vs. net three interest rate increases in 2015—has allowed monetary policies to be eased.