Top of the Morning: Emerging Markets - Back in the spotlight
At a Glance
The desk believes emerging markets are poised for continued momentum as they regain attractiveness against a backdrop of historic challenges and market shifts. Per the full note source, there has been notable outperformance of international stocks, with emerging market equities rising over 16% year-to-date, eclipsing U.S. market gains amidst a stronger dollar. With no significant upcoming catalysts noted in the next 30 days, traders should prepare for volatility as positioning may shift based on broader macroeconomic indicators.
Key Takeaways
- 01Emerging markets show strong performance amidst high U.S. tariffs.
- 02International stocks are outperforming U.S. stocks for the first time recently.
- 03Strategic positioning in emerging markets may shift as year progresses.
- 04Traders should monitor volatility in key pairs as macroeconomic indicators evolve.
Full Analysis
What the desk is arguing
The desk asserts that emerging markets are reclaiming market spotlight, evidenced by robust stock performance in the first half of 2025. Alejo Czerwonko highlights that this comes amid record-high U.S. tariffs and a challenging dollar environment, factors that traditionally impact emerging market dynamics.
Key data points indicating this shift include European stocks appreciating nearly 30% in USD and emerging market stocks up over 16%—the first substantial outperformance relative to U.S. equities in some time. This context suggests a changing landscape where macroeconomic adversity may fuel investor interest in EM assets.
Where it sits in our coverage
Our current consensus target for the emerging markets sits at 1.075, reflecting an optimistic view amidst a widening range where we observe expectations from various firms, such as: - JPMorgan: 1.10, Mar26 - BofA: 1.04, Mar26
The desk’s call is positioned towards the upper bound of expectations, signaling confidence in emerging markets as they continue to adapt to shifting economic conditions through the second half of 2025.
How other firms see it
Firms such as JPMorgan and Goldman Sachs appear aligned with our bullish perspective on emerging markets, highlighting similar stock performance narratives. Conversely, BofA presents a more cautious stance, reflecting concerns around economic instability that could stifle growth potential.
Markets will watch pairs such as USD/TRY for signs of volatility reflective of shifting markets, especially as EM central banks adjust to new economic signals. The trajectory of USD/COP could also serve as an indicator of broader regional sentiment amidst these developments.
Market Implications
Traders should actively observe the USD/TRY and USD/COP pairs for signs of shifting risk sentiment. A clearer path for emerging markets will depend on economic indicators and central bank actions that may influence currency stability.
From the original
Alejo rejoins in studio for a mid-year conversation on the Emerging Markets, including a recap of first-half performance drivers, expectations for the second-half, and thoughts on positioning across emerging market assets. Featured is Alejo Czerwonko, Chief Investment Officer for
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The desk is optimistic about emerging markets, viewing the current macroeconomic environment as fortuitously favorable, as outlined in UBS's recent analysis. Per the full note [source], a combination of a potentially softening U.S. dollar, substantial commodity support, and a dovish Fed provide a strong backdrop for emerging market resilience, particularly looking ahead to 2026. Notably, the prospect of Fed cuts could drive a strategic reallocating of assets towards emerging market equities, fixed income, and currencies, while uncertainties in elevated debt levels and geopolitical concerns are deemed manageable. This sentiment aligns with expectations of enhanced market growth, spurred by AI-driven innovations, suggesting that investors should remain vigilant of all factors influencing emerging market trajectories.
Bright Spots in Emerging Markets
The desk views emerging market assets as displaying resilience in the first half of 2016, buoyed by a favorable external environment and key local factors. Per the full note from Goldman Sachs, strategist Kamakshya Trivedi points to influential dynamics such as China's recovery and Brazil's ongoing reforms. Emerging markets have outperformed expectations, showing a robust response to global monetary easing and stabilizing commodity prices. The desk expects this trend to continue, pending alignment with macroeconomic conditions.
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