After depreciating for over 18 months, the US dollar has managed to make a comeback, recouping its 5% YTD loss in a matter of weeks. Coupled with 10 year US Treasury (UST) yields hovering around 3%, this has put pressure on Emerging Markets (EM).
As much as we would prefer to discuss market fundamentals over the trials and tribulations of the current US Administration, it has been largely unavoidable in this first quarter of 2018.
Markets continue to come to terms with the return of higher volatility, triggered ostensibly by fears of inflation and the unwinding of highly leveraged short volatility positions at the beginning of last month.
In our 2018 outlook, we made the case for rising volatility as central banks across the developed world slowly remove the stimulus punch bowl, but few would have imagined volatility spiking with such a vengeance as it did in recent weeks.
Over the past few years, one of the main risks that concerned our team was the possibility that asset classes could become positively correlated.
What is the prognosis for Emerging Markets as major global central banks begin to tighten policy?
The Trump reflation trade may have lost some of its shine during the quarter, but any disappointment was more than overshadowed by strong global data as exports and production continued to gather pace.
Is Volatility too low and what re-pricing could mean for various asset markets
2016 may best be remembered as the year in which Trump won and the world changed. The question becomes which reforms will take centre stage.
Our Multi-Asset portfolio manager based in Singapore reviews the prospects for profit margin expansion in the three main Emerging Market regions.