Bank of America Securities forecasts substantial double-digit returns for emerging market assets, driven by expectations of a weakening U.S. dollar. David Hauner, head of global emerging markets fixed income strategy at Bank of America, anticipates stabilization in long-term U.S. bonds, further supporting this outlook.
The firm is particularly optimistic about Eastern European currencies and stocks, as a weaker dollar typically benefits the euro, which in turn strengthens regional currencies. In fixed income, Brazil remains a top choice due to its high interest rates, with potential rate cuts expected by year-end.
The dollar is near a two-year low, with major Wall Street banks like Morgan Stanley and JPMorgan predicting further depreciation due to potential Federal Reserve rate cuts, slowing U.S. economic growth, and ongoing fiscal and trade policy uncertainties. This could expedite capital flows from U.S. to emerging market assets.
Emerging markets have rebounded this year, bolstered by local currency bonds and stocks. Sovereign bonds have delivered a 5.7% average total return, with Brazil's carry trade boom contributing to a 20% increase. Emerging market stocks, led by China and India, have outperformed the S&P 500 by 7%.
Despite positive returns, investor positions in emerging market assets remain light, suggesting potential for increased investment in the coming months. Bank of America predicts a new bull market for emerging markets, highlighted by a $2 billion inflow into emerging market stocks, contrasting with significant outflows from global equities.
