Di Yi Cai Jing·2025-12-22 08:56Core Viewpoint - Emerging market assets are expected to perform well in 2026, with a general consensus among institutions that there is little pessimism regarding these markets [1][4][6]. Group 1: Market Performance - Emerging market local currency bonds have risen by 18% and stocks by 26% in 2025, marking a significant recovery from previous years [3]. - Emerging market stocks have outperformed U.S. stocks for the first time since 2017, and the yield spread between emerging market bonds and U.S. Treasuries has narrowed to its lowest level in 11 years [3]. - The Bloomberg Emerging Market Carry Index has achieved a return of 16.71% this year, the best since 2009 [3]. Group 2: Investor Sentiment - A recent survey by Bank of America involving 300 investors revealed that there is almost no pessimism towards emerging markets [4]. - HSBC's December survey indicated that bearish views on emerging markets have completely disappeared, with net bullish sentiment reaching a historical high [4]. - Strategas estimates that U.S. ETFs focused on emerging market stocks attracted nearly $31 billion in 2025, while emerging market bond funds absorbed over $60 billion [4]. Group 3: Economic Outlook - Emerging markets are expected to benefit from a more accommodative global financial environment and stable internal policies, with growth anticipated to outperform developed economies [6]. - The Asian region is highlighted as a key growth engine, with potential for pro-business governments emerging from elections in Latin America [6]. - Structural trends such as geopolitical reshuffling and supply chain restructuring are expected to favor emerging markets, particularly in Asia [5]. Group 4: Investment Strategies - Emerging market bonds are seen as attractive due to high yields and diversification benefits, with a focus on Central and Eastern Europe, parts of Latin America, and Asia [6]. - Investment in technology sectors and industries with clear advantages, such as the electric vehicle supply chain and renewable energy in China, is recommended [6]. - The outlook for Indian markets is positive, driven by the "Make in India" initiative, which is expected to boost manufacturing and infrastructure [6]. Group 5: Currency and Interest Rate Dynamics - The trajectory of the U.S. economy is crucial for the sustained strong performance of emerging market currencies, with expectations of a slowdown encouraging the Fed to maintain loose monetary policy [9]. - JPMorgan and Morgan Stanley predict that emerging markets will benefit from a weaker dollar and the investment boom in AI [9]. - Emerging market currency volatility is currently low, but there are concerns that unfavorable exchange rate movements could erase gains [11].