MacroResearchBoard

Latam and EMEA Have More Scope to Cut Rates Than Asia – July 29, 2024

A recent report argued that a lot of the juice had already been squeezed out of EM debt, and that investors should temper their return expectations for the asset class. Nevertheless, the improving global trade cycle will still outperformance both EM local currency and hard currency debt within a global fixed income portfolio. Nevertheless, it will pay to be selective over the next 6-12 months, and within an EM local currency-denominated portfolio, the best opportunity set is likely to be found among high yield issuers.

The latter are concentrated in Latin America and Europe, Middle East and Africa (EMEA)  where growth momentum will be weaker than in lower-yielding EM Asia, but whose central banks have more capacity to cut interest rates, especially if the U.S. Fed delivers even modest rate cuts in the months ahead.