Monetary

We assess where emerging markets debt is on a strategic and cyclical basis. We find it has benefited from local central banks boosting their inflation-fighting credentials and governments improving financial stability. As a result, EM debt is behaving less like a risk-on asset, changing the role it plays in a global portfolio. We also expand our asset allocation playbook by assessing how the asset class behaves across the business cycle. While EM debt is more than a risk-on play, we suggest investors stay cautious on a cyclical horizon.

Improved consumer morale will not compensate for the fading tailwinds to consumption. Neither will the wealth effects from higher stocks and home prices.

In this <i>Insight</i>, we revisit our long AUD trades, after the upgrade from our attractiveness ranking last week.