Limited rise further Johny Goulden, strategist, J.P. Morgan

Dünya Executive - - REPORT -

Emerging markets assets have benefited from the fading risks of imminent policies coming from the US administra­tion that would disrupt trade or significan­tly boost US growth/inflation/rates, as well as evidence of what looks like a global cyclical pick-up in business activity and confidence. These forces are by now well-understood and EM investors are already bullishly positioned. From March, the USD weakened versus EM FX, US rates moved lower on fading policy risks, and US data surprises fell amid an apparent rotation in growth from the US to the rest of the world—all of which has helped the performanc­e of EM assets. While markets are looking for new drivers ahead, there is nothing significan­t on the horizon in the coming month, in our view, although the shift in focus has caused us to shift our recommenda­tions bias. Our economics team expects global growth to pick up in Q2 but this time led by a revival in US growth rather than further upside from global ex-US growth. While this should be positive for risk assets globally, it would limit the upside for EM FX in coming months. Conversely, any disappoint­ment in global activity data would likely cause rates to fall, with EM FX potentiall­y reversing gains against the dollar if commoditie­s and risk markets suffer. As a result, we recently reduced the EM FX exposure in our EM fixed income recommenda­tions, shifting overweight instead further to local rates. (May 11)

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