Emerging Markets
Core Europe’s industrial sector will relapse in the coming months due to US tariffs and a strong euro. Investors can play the imminent deflationary shock by being long Central European bonds. They should, however, hedge the currency risk vis-à-vis the euro.
USD-denominated Emerging Market bonds have been outperforming US corporates for the past year. We don’t think the rally is exhausted yet.
A fleeting greenback rally post Fed rate cut will offer a final chance to reset short dollar exposures. See why undervalued Asian FX are poised to lead the next leg lower in USD and how to position now.
Our Portfolio Allocation Summary for September 2025.
MacroQuant sees downside risks to stocks over a long-term horizon but is not yet saying that we are at imminent risk of an equity bear market.
EM sovereign and corporate credit spreads are set to widen. Within a global credit portfolio, maintain a neutral allocation to EM credit markets versus US corporate credit. Favor EM local currency bonds over EM USD bonds.
The Indian rupee remains vulnerable to further depreciation amid slowing growth, tight domestic policy, and fragile capital flows. Trade risks and a weakening external balance will likely keep INR underperforming EM Asia peers.
Colombian markets will be torn between expectations of future orthodox policies and the reality of a worsening macro backdrop in the next 12 months. To balance risks, we are upgrading Colombian equities, local bonds, and sovereign credit from underweight to neutral versus their respective EM benchmarks.
