Public Fixed Income
EM Local Debt: Is the EM-U.S. Disconnect an Overlooked Opportunity?
Emerging markets have become increasingly out of sync with the U.S. in terms of inflation and economic growth. Markets are ignoring the disconnect, which could spell an opportunity for investors.
As U.S. inflation and economic growth have remained surprisingly strong so far this year, emerging markets (EM) local interest rates have also moved higher (Figure 1). But the inflation dynamics in EM, unlike their local rates, are not in sync with the U.S.—particularly given that EM inflation has continued to decelerate and is now very near or at central bank targets.
We believe this disconnect is presenting a potentially attractive opportunity for investors.
Figure 1: EM and U.S. Rate Differential
Sources: Bloomberg; JP Morgan. As of May 1, 2024.
