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11 May 2015
Remaining cautious on EM assets – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team summarizes the key developments in Emerging market equity and bond markets, suggesting to maintain the divergence theme.
Key Quotes
“EM assets are again being pulled in two directions. EM equities are getting a boost from the PBOC rate cut over the weekend, while EM currencies are starting off soft this week as the strong US jobs report puts Fed lift-off back on the radar screen. US retail sales for April come out on Wednesday, and another strong report would likely lead to another leg higher for the greenback.”
“EM bonds are also vulnerable in light of the ongoing correction in global bond markets. Yet what’s encouraging for EM bulls is the fact that the carnage is nothing like the 2013 “Taper Tantrum.” The US 2-10 year curve has steepened 28 bp (Germany by 36 bp), and yet the worst hit in EM have only seen curve steepening of 25-30 bp. Back in 2013, the EM bond selloff was much worse.”
“Overall, we remain cautious on EM assets, and advise investors to maintain the divergence theme within EM. We see Asia as the best-positioned in the current environment, with EMEA and Latam less so.”
Key Quotes
“EM assets are again being pulled in two directions. EM equities are getting a boost from the PBOC rate cut over the weekend, while EM currencies are starting off soft this week as the strong US jobs report puts Fed lift-off back on the radar screen. US retail sales for April come out on Wednesday, and another strong report would likely lead to another leg higher for the greenback.”
“EM bonds are also vulnerable in light of the ongoing correction in global bond markets. Yet what’s encouraging for EM bulls is the fact that the carnage is nothing like the 2013 “Taper Tantrum.” The US 2-10 year curve has steepened 28 bp (Germany by 36 bp), and yet the worst hit in EM have only seen curve steepening of 25-30 bp. Back in 2013, the EM bond selloff was much worse.”
“Overall, we remain cautious on EM assets, and advise investors to maintain the divergence theme within EM. We see Asia as the best-positioned in the current environment, with EMEA and Latam less so.”