Top of the Morning: Are emerging markets becoming less volatile than developed markets?

What the desk is arguing

The desk frames this as a pivotal moment for EM investments, shifting the narrative away from traditional views of EMs as high-risk, high-volatility assets. The commentary emphasizes that despite a tumultuous global backdrop, assets from emerging markets have shown resilience and even growth, prompting a reassessment of their risk profiles.

Supporting this assertion, emerging market equities and currencies have recorded notable outperformance, delivering positive returns that stand in stark contrast to the expectations connected with DM performance. This trend calls into question the established paradigms around EM volatility and may encourage traders to rethink their portfolios to capture the potential gains.

Where it sits in our coverage

Our current consensus target for the emerging market currency index is 1.075, with a range spanning from 1.04 to 1.12. Notable firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This perspective aligns closely with jpmorgan, which suggests relative firmness in emerging markets, while it diverges from bofa, indicating a more cautious outlook. As current estimates reflect a slight upward tilt, this places our desk's view at the higher end of the expected range.

How other firms see it

Firms such as jpmorgan and citigroup exhibit alignment with the desk’s analysis, noting the recent resilience of EM assets. In contrast, bofa takes a more cautious stance, highlighting potential setbacks.

As the narrative develops, key indicators such as emerging market currency variations relative to global risk sentiment and interest rate differentials will be critical to watch. The pressure on developed currencies could provide a clearer signal of EM robustness.