Interview
Why emerging markets could keep rallying
- Emerging markets equities are forecast to achieve a 10% upside rally by the end of the year, driven by positive growth differentials, a weaker dollar, and flat or rising S&P performance.
- Continued foreign capital inflows are expected to fuel further rallies, supported by underweight institutional positioning and limited recent hedge fund buying.
- Greater confidence is placed in emerging markets excluding China as a trade against the dollar and risk sentiment over the next year, whereas Chinese equity performance is viewed as contingent on global trade policy, tariffs, U.S.-China relations, and stimulus injections.
- Brazil's central bank is anticipated to initiate rate cuts within the next year as the hiking cycle concludes, with attractive valuations and potential election outcomes identified as catalysts for significant upside under market-friendly conditions.
- A narrative shift away from U.S. exceptionalism could prompt institutional investors to increase emerging market exposure, potentially creating a multi-year trade where these markets outperform the U.S. over the next few years.
- Investors may target outsized returns in Brazil through dollar-denominated indices options, with sustained rallies potentially enhanced by favorable foreign exchange movements.
- Short-term market performance depends on U.S. bond market stability; calm bond markets in the coming weeks could facilitate continued equity rallies and outperformance, while persistent volatility would hinder risk assets.