- The stronger US dollar, higher inflation, and tighter financial conditions weighed on emerging markets equities in the third quarter. Looking ahead, we are watching elections in Brazil and the National Communist Party Congress in China in October for signs of policy direction.
- We believe this is an attractive entry point for emerging markets equities: Valuations are attractive relative to history and to developed markets; profitability, free cash flow, and dividend yields have all moved higher; and earnings growth is expected to recover in 2023.
- Emerging markets debt suffered a fifth consecutive quarter of negative returns, and the blended asset class is now well into its worst-ever drawdown. However, bottom-up fundamentals are generally solid, valuations are attractive, and investor positioning is light.
- With recession warning signs flashing, we are currently positioned very conservatively in emerging markets debt. We have reduced US interest rate duration and moved up in credit quality as we await better entry points to increase risk. READ MORE
Exhibit 2: Bolsonaro vs. Lula: Policy Proposals Diverge, Especially on Fiscal Policy
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