Emerging market assets are expected to deliver returns of several percentage points this year as the dollar is projected to continue to decline.
David Hauner, global head of emerging markets fixed income strategy at Bank of America Securities, said: “For this year, we can easily maintain double-digit returns because we view the US dollar as the most important driver and see stability in US long-term bonds.”
Honer said that in terms of fixed income, Brazil remains his top choice because the interest rates in this South American country are very high and may start to decline before the end of the year.
The US dollar is approaching a two-year low. Wall Street banks including Morgan Stanley and JPMorgan Chase expect the dollar to weaken further due to possible interest rate cuts, slower economic growth and ongoing fiscal and trade policy uncertainties. This could accelerate the shift of funds from US assets to those in developing countries.
“With the US dollar weakening, the best-performing major currency is the euro,” Hone said. “This usually means that the entire European time zone should perform the best, as these currencies benefit the most when the euro rises.”
This year, the rally in emerging markets has been mainly driven by local currency bonds and equities. Local currency sovereign bonds have delivered an average total return of 5.7% for investors, with Brazil leading the way as carry trade enthusiasm pushed its yield to 20%. Yields in ten other countries also reached or exceeded 10%.
In the stock market, the seven-year streak of underperforming the US stock market has come to an end. The MSCI Emerging Markets Index outperformed the S&P 500 by over 7%, with China and India leading the way.
Although emerging market assets have delivered positive returns this year, Honegger said that investors’ exposure to such assets remains light – a situation that could change in the coming months.
“People need to see emerging markets continue to surprise on the upside over the next few months, right?” Horner said. “In the past, people have suffered huge losses in emerging market assets, you know, they just need to gradually adapt over time.”
Technical analysis:
Gold: Yesterday, the price in the yellow zone we alerted through the plugin swept through the liquidity below 3344, then broke through 3350 to complete the buy stop. After weathering the ADP data, it continued to rise to around 3385, achieving a profit-to-loss ratio of about 5 times. Today, we will continue to maintain the low buy at around 3355, using the combination of green and yellow settings. For detailed positions, please consult the plugin.
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and leave a message with the code 666.
The Nasdaq has been consolidating at a high level recently. We should remain vigilant and be prepared for a possible pullback at any time. Currently, the ADP data is lackluster, and the market’s focus will shift to the NFP data on Friday. If the non-farm payroll also shows weakness, we may adjust our trading strategy for the Nasdaq starting next week. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg and note “666” in the message.
Crude oil: We had a long position on the pullback at 63.36 previously, which reached a high of 64.12, with a profit-to-loss ratio exceeding 2. After the ADP release overnight, the price fluctuated up and down. We need to wait for further confirmation signals before attempting to trade again. The key level to watch for downward liquidity is 62-62.20; the level to watch for upward momentum break is around 63.50. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and note “666” in the message.
Today’s key economic data and events to focus on:
15:30 Germany May Markit/BME Construction PMI
17:00 Eurozone Producer Price Index (Year-on-Year) for April
20:15 ECB Refinancing Rate
20:30 U.S. Seasonally Adjusted Initial Jobless Claims (in thousands) (to May 31)
At 20:45, the President of the European Central Bank, Christine Lagarde, will hold a press conference on monetary policy.
