Emerging Markets
MacroQuant recommends a slight underweight in equities, favors a below-benchmark duration stance in fixed-income portfolios, remains bearish on the US dollar, has upgraded oil and copper to overweight, and is bullish on gold.
The precious metal bonanza has not resolved the South African economy’s plight. Nor did it improve its public debt sustainability issues. Investors should brace for a reversal in South African stocks, bonds, and the currency.
At major technical crossroads, markets eitherpull back before staging a sustainable breakout, or attempt to break out only to drop considerably (i.e., a fakeout). We believe the latter dynamics are more likely to play out.
MacroQuant has downgraded equities to underweight, favors a below-benchmark duration stance in fixed-income portfolios, remains bearish on the US dollar, and is still bullish on gold.
Following this weekend's election, we reiterate an overweight stance across Chilean risk assets relative to EM benchmarks and advise buying local currency government bonds (currency unhedged).
Risk assets in EM/China and cyclical commodities will sell off in H1 2026. A shift toward aggressive policy stimulus in China and a clear improvement in global manufacturing are needed to produce durable rallies in EM/China risk assets and the prices of energy and industrial metals.
The Kingdom faces a troika of global factors in the next 12-18 months: (1) US policy rates will be cut considerably; (2) the US dollar will depreciate significantly; and (3) crude prices will remain low.
How should investors position themselves in this market?