GEMs in the Week: What's Cheap Going into Q3?

HSBC's latest fundamental valuation update suggests a rotation in emerging markets, with EM local currency debt now offering the best value, while equities and external debt are trading at premiums. This shift, combined with light investor positioning, may favor LCD performance in Q3.

Key Takeaways

• 1.EM local currency debt (LCD) is now the cheapest major EM asset class based on fundamental valuation models, trading at a 0.4 standard deviation discount.
• 2.EM equities and external debt (EXD) currently screen at a premium relative to fundamental valuations.
• 3.Investor sentiment remains downbeat with increased underweight positioning, though the overall market backdrop is viewed as constructive.

Table of Contents

• EM valuations going into Q3: the multi-asset view
• Disclosures & Disclaimer
• Multi-Asset Emerging Markets
• No country for bears
• Performance this week
• Equity
• Fixed Income
• FX
• EM Performance: Equity
• EM Performance: Local currency debt
• EM Performance: External debt
• EM Performance: FX
• EM Relative Performance
• EM Performance: YTD total return breakdown
• Correlations
• Global Indicators
• EM Activity
• EM Inflation
• EM Monetary Policy
• Global Monetary Policy and Financial Conditions
• EM Sentiment and Positioning
• CTA positioning
• EM Valuations
• EM Earnings
• EM Carry-to-volatility ratios
• Total Financial Flows
• Monitoring Japanese Flows

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