Local emerging-market assets still have an edge over those from mature economies, according to BlackRock Inc.’s research arm, as some of the world’s most-influential central banks skid toward peak interest rates.
Local-currency debt is getting a boost as policymakers from the developed world wrap up their monetary tightening cycles, supporting emerging-market currencies, according to BlackRock Investment Institute strategists including Wei Li. Domestic-currency bonds have returned more than 4% this year, according to data compiled in a Bloomberg index.
“We still think EM assets have an edge over developed market peers,” they wrote in a Monday note. “Inflation is cooling enough in key EMs to allow policy rate cuts.”
The strategists, who went tactically overweight on emerging local bonds in March, are among a growing cohort on Wall Street who favor local emerging-market assets. Pacific Investment Management Co., JPMorgan Chase & Co. and Fidelity International have all touted opportunities in the asset class after many domestic central banks began their battles against inflation early and aggressively, resulting in attractive rate dynamics.
To BlackRock’s research unit, Mexico’s local debt is attractive for its quality tilt, while Brazil offers carry from still-high bond yields.
Emerging-market equities also have room for upside and offer more attractive valuations than their developed-economy peers, according to the BlackRock Investment Institute, “as the policy picture and EM economic growth prospects improve, even as China’s restart sputters.”
(Adds detail on BII’s equity view in final paragraph.)
