Fixed Income

In part 2 of this series, we discuss mainstream EM equity valuations and present the results of our cross-country analysis. The goal is to identify overweights and underweights within an EM equity portfolio.

Deflation prevails in China’s economy. Marginal interest rate cuts will be insufficient to boost growth as the economy is experiencing debt deflation and might be entering a liquidity trap. There will likely be more economic disappointments in the coming months. Chinese stocks will continue to sell off. Government bond yields will fall to new lows, and the RMB will depreciate further against the US dollar.

European yields are testing the upper end of their recent trading range. Is the European economic outlook consistent with an imminent breakout?

While the bearish bond trade currently has a lot of momentum, we continue to think that Treasury yields are close to a cyclical peak and will be lower on a 6-12 month horizon.