Insight

Global Fixed Income Strategy - March 2024

Global Fixed Income Strategy - January 2024
Key takeaways
Impact of US policy on Emerging Markets (EM)
1

The Fed continues to be the prime driver for EMs. We are approaching the start of rate cuts, and even a shallow cutting cycle could benefit EMs. In the meantime, EM carry is attractive, in our view, and individual country dynamics could create total return opportunities.

China impact
2

China’s newly announced economic policy targets reflect a broad continuation of last year, with efforts largely focused on promoting stability while seeking new sources of economic growth. Though not suggestive of broad stimulative measures, these policies offer a marginally more supportive environment for EMs.

Dispersion could create EM investment opportunities
3

Ultimately, we believe economic dispersion will drive the EM opportunity set. As we look at the rapid disinflation seen in Central and Eastern Europe over the last few months, we believe that individual country dynamics can drive returns, regardless of external outcomes, such as Fed decisions.

This year’s big surprise has been the resilience of global growth, especially in the US, making a long-awaited recession unlikely. Emerging markets (EM) have also displayed remarkable growth resilience, despite restrictive domestic interest rates and China’s wobbles. A global soft landing, including in the US, remains our baseline forecast and would be supportive of EM, in our view.

Nevertheless, uncertainty about US interest rates and slower Chinese growth have dampened sentiment toward EM. Going forward, we believe US interest rate cuts will be the primary catalyst for unlocking further EM performance, even in the event of a shallow cutting cycle. We view greater stability in China as another positive factor for EM. Though less impactful than US rate cuts, potentially easier Chinese monetary and fiscal policy in the second half of the year could provide a supportive backdrop for EM.

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