Displaying items by tag: EMs

Recent movements in some of the most sensitive global assets suggest that the Federal Reserve’s decision to lower interest rates may have come too soon or might not be sustainable. Since the Fed’s rate cut in mid-September, emerging-market assets have acted as if borrowing costs will stay elevated, leaving them vulnerable. 

New risks, including rising U.S. Treasury yields and a stronger dollar, have overshadowed any benefits from the rate cut, with concerns over China’s lackluster stimulus and the potential return of Donald Trump to the presidency adding to market uncertainty. 

Investors in emerging markets are now positioning themselves defensively in the face of a stronger U.S. economy and a weakening Chinese one. While there was initial optimism, strong U.S. data and political tensions have reignited fears of persistent inflation. 

Finsum: This could have traders reassessing their strategies, unsure of how much more support they can expect from central banks.

Emerging-market stocks fell as new signs of economic trouble in China emerged, with trading volumes low due to the U.S. Labor Day holiday. The MSCI Emerging Markets Index slid 0.3%, driven by declines in Chinese giants like Alibaba and Tencent, despite gains in Taiwan Semiconductor. 

The drop followed data showing that Chinese factory activity contracted for the fourth month in a row, casting doubt on the country’s growth prospects for the year. Meanwhile, currency markets are bracing for potential U.S. interest rate cuts, with upcoming economic reports likely to shape the outlook. 

The Brazilian real weakened despite central bank interventions, amid rising fiscal concerns and political uncertainty in Latin America. In a related move, Hungary issued yen-denominated bonds, nearing its cap on foreign currency debt issuance.

Finsum: It will be critical to monitor exchange rates as the US begins letting rates fall, this could have a big impact on Ems

As the $1.7 trillion private credit industry faces a significant fundraising slump, firms like Adams Street Partners, Antares Holdings, and Hayfin Capital Management are focusing on Latin America. They're targeting pension funds and wealthy individuals. 

Philippe Stiernon of ROAM Capital notes that scarce capital in the US and Europe is pushing managers to diversify. With institutional investors in the US and Europe at saturation points, funds are exploring Latin America for new growth. 

This region offers safer investments compared to its volatile domestic debt markets. Stiernon describes Latin America as "the last major frontier for LP growth" in the alternative investments landscape.

Finsum: This presents an opportunity to ultra diversify and get truly uncorrelated turns as we move into a potentially tumultuous election cycle. 

In 2024, emerging-market investments face a challenging environment due to high interest rates, elections, and strict regulations. However, optimism exists for both fixed income and equities. 

Higher-rated countries with strong external credit positions are less affected by rising rates, and better policymaking enhances stability. China's economic impact on commodity prices remains significant, while India's growth prospects are strong. 

South Korea's undervalued market may benefit from policy changes, and exposure to semiconductors and AI in regions like Korea, Taiwan, and China offers additional opportunities.

Finsum: Also keep a role on political stabilization which seems to be trending positive for a number of EMs.

Indian government bonds have been added to the JPMorgan GBI Emerging Market Global Series Index for the first time, reflecting a milestone for Indian markets. The move follows the RBI's 2020 decision to remove foreign investment restrictions on specific rupee debt.

Starting June 28, 27 Indian G-secs are now open to non-resident investors under the Fully Accessible Route, boosting their market presence. These bonds, with the longest duration in the index and a yield of 7%, present a significant opportunity for global investors. 

This inclusion is expected to raise foreign ownership of Indian government debt from 2% to 4.4% and may lead to further additions in other global indices.

Finsum: Investors might start flocking to EM as rates fall in the west.