At Any Rate EM Fixed Income: EM outlook for 2H25
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Jun 6, 2025 Saad Siddiqui, Head of EM Local Market Strategy, dives into the complexities of currency dynamics and EM carry, while Nora Szentivanyi, a Senior global economist at JPMorgan, sheds light on trade policies and inflation trends. They discuss the impact of U.S. trade policies on emerging markets, scrutinize inflation forecasts, and tackle the outlook for EM currencies amidst a potential dollar weakening. The duo also navigates the resilience of sovereign credit in light of recent economic shocks and fiscal challenges, offering strategic insights for cautious investment.
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Trade Policy and Growth Outlook
- Trade policy remains uncertain, with U.S. tariffs likely to stay elevated or increase, especially beyond steel and aluminum sectors.
- Global growth is slowing markedly, with emerging markets and China facing deceleration but no clear recession on baseline forecasts.
Divergent Inflation and EM Rate Cuts
- U.S. inflation is forecasted to rise sharply whereas EM inflation is expected to ease due to soft domestic demand.
- 20 of 22 major EM central banks are predicted to cut rates by year's end, enabled by falling inflation and weakening dollar.
Changing Dynamics of the Dollar Cycle
- The long U.S. dollar bull run may be peaking due to slower U.S. growth and overvaluation, opening a potential dollar weakening period.
- Unlike past cycles where high beta EM currencies thrived, this time lower beta, net foreign creditor EM currencies may outperform.