CoreMacro
| Emerging Markets
Research on emerging economies, from in-depth country reports to calls on EM stocks, bonds, and currencies.
The growth and inflation profiles of the three central European countries are set to diverge. The outlook for Polish and Hungarian Bonds are not attractive anymore. Book profits on them. Instead, initiate a new trade: pay Polish / receive Czech 10-year swap rates.
There has been a paradigm shift in Beijing’s approach to policy stimulus. The main purpose of government policy is now managing downside risks to the economy in both the short and long term. The priority for the central government is to build an economic and financial system resilient against potential negative shocks, including external threats.
The Chilean economy is entering a recession. Inflation will drop rapidly and the central bank will cut rates meaningfully in H2 2023. We continue to recommend a structural overweight across Chilean risk assets on the basis of falling inflation and local yields, record cheap valuations, and dissipated political volatility.
Investor sentiment on China and EM has become bullish. Meanwhile, the reflation plays have begun fraying on the edges. Cracks always appear first in the most sensitive reflation plays and then spread to the core. The narratives of the Fed's imminent pivot and China's recovery will be questioned in the coming months. Thus, China/EM assets and related plays will sell off, and the US dollar will rebound.
Thai stocks and currency will weaken over the short term. And yet EM equity portfolios should overweight Thailand as tourism revivals will rejuvenate this economy.
The risk-reward profile of Egyptian domestic bonds are very attractive over the next six to 12-months. Go Long.
Mexico is caught between crosscurrents. On the one hand, headline and core inflation are at multi-decade highs. On the other hand, genuine inflationary pressures are subdued, and fiscal and monetary policies are hawkish. Going forward, the economy will decelerate meaningfully, but likely achieve a soft landing as the central bank will be able to cut rates in H2 2022. Further, the nation’s healthy external accounts will put a floor in the domestic slowdown. We continue to overweight Mexico across all EM asset classes.
