Perspectives: EM Opportunities Amid Risky Geopolitics
· 09.02.2024 · 23:15:14 ··· ··· Friday ·· 5 (5)
DoubleLine Capital While armed conflicts and other geopolitical fault lines have made headlines the past two years, DoubleLine Global Bond Portfolio Managers Bill Campbell and Valerie Ho see (0:03) emerging markets having largely priced these risks and see opportunities in specific countries that have supportive monetary and fiscal policies amid global disinflation. This discussion was moderated Feb. 1, 2024, by DoubleLine Product Specialist Chris Stegemann.
1:12 More than 60 countries have elections scheduled in 2024. Ex-U.S., most of these appear on track to produce benign or status quo outcomes. Taiwan notably elected the presidential candidate of the independence-minded Democratic Progressive Party, a potential source of tension escalation with China. However, the DPP lost its legislative majority, which Bill Campbell says points to a continuation of policy status quo.
3:45 Valerie Ho describes the dynamics between financial markets and elections, including the wild card of “regime-changing” outcomes at the ballot box and the possibility that fiscal stimulus and other policies enacted by governing political parties could disappoint expectations of ongoing market-friendly reforms.
5:52 Ms. Ho also discusses the lack of clarity over the possibility of a “free and fair” presidential election in Venezuela and U.S. sanctions policy toward the country. She weighs the coming presidential and congressional elections in Mexico. The incumbent party, Morena, is expected to retain the presidency and emerge with a simple majority in the lower house of Congress. However, Ms. Ho notes an outlier risk of Morena securing a two-thirds majority in both House and Senate. Such a result, she warns, would empower Morena to implement constitutional changes that could impair institutional safeguards of the country. Among the Latin American countries, DoubleLine is overweight Mexico as well as Brazil.
8:40 Mr. Campbell addresses “positive external backdrops” that are supportive of emerging market credit and currencies, including expanding fiscal stimulus; central banks in the process of pivoting from hawkish to dovish monetary policies; and global “disinflation well under way.”
9:55 Reviewing DoubleLine’s ex-U.S., country-specific trades outside Latin American, Mr. Campbell singles out India, Indonesia and Poland for their “well supported growth models, high real yields and institutional strength” in terms of rule of law, fiscal discipline and functional domestic governance.
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