The EM growth story should unfold in the spring

Oil prices have rallied over the last few months and while Francisco Blanch has crude oil forecasts above the commodity curve for 2024, the curve is downward sloping as demand growth is expected to be weaker and supply stronger. With Emerging Markets (EM) now negatively correlated with oil prices, lower oil could be a relief-China and India are now the biggest importers of oil in the world. David Hauner adds that 80% of EM returns tend to come when the Fed is just about to cut rates or is cutting rates. While the first cuts probably won't come until around the middle of 2024, the Spring may be the time to turn cyclically bullish on EM. In the mean time, David recommends buying credit protection on liquid EM sovereign bonds as a hedge-he believes EM credit spreads may be the next shoe to drop.

 

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