Emerging Markets Quarterly
Rates/Currencies: In Defense of the Defensive
Oct 24, 2011
| Last Updated
- We see potential for a short-term relief rally on the back of reasonably positive news from the eurozone, but believe that it will provide a good opportunity to short many emerging market (EM) assets, as the upcoming EU summits are unlikely to deliver a sustainable solution for the periphery debt problem.
- We maintain small strategic “underweight” in EM local currency and external debt, albeit a potential relief rally provides an opportunity for tactical bottom-fishing in long-dated sovereign external debt with near-zero incremental default risk in high-beta countries (Russia’s 2030 bond or Argentina’s Boden 2015 bond). We are evaluating a possibility of re-entering inflation-linked debt longs in Turkey (short end) and Brazil (middle of the curve).
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