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00:00The dovish Fed is unmitigated a positive theme in two ways. One, if that divergence leads to a more moderation in the US dollar, a weaker dollar is bullish for em or more broadly, a lot of EM risk assets, including the corporate credit asset class, an emerging market and external sovereign bonds. They benefit from a Fed easing. They just as all developed market fixed income assets do. So that environment, which is one where EAM economies have been navigating this, you know, intense sort of geopolitical environment with aplomb. Having had that, the crisis already, if you like. I think this sets us up for a good period. Yeah. So you are an emerging market specialist so you understand the playbook better than anyone else of what happens when the government tries to intervene or exert pressure on the central bank. There are cases of Argentina, Turkey that we can speak to. What do you see happening in the US if this move out of the Trump administration to interfere more with Fed policy making continues? We are in an unprecedented time. I think we've for a long time had this label of emerging and and developed markets. And I think maybe right now we need a new phrase for this. Maybe the right word is converging markets. So we're seeing a lot of the, if you like, tenets of of free markets and capitalism being, if you like, re re-examined, reconsidered. One of the key pillars of that is the independence of the central bank. I think within I'm speaking from our own experience, we've seen many episodes where where that independence is challenged. It usually leads to a period where, you know, certainly risk premia rise and uncertainty rises. I think, you know, it's in the long arc of history. You know, we think that the principles of that independence are well understood. And then, you know, we can't really comment about what that means for the US, but it certainly is echoing in, let's say, an uncomfortable way for those of us who have spent a lot of time and time looking at that and saying, hmm, I thought this wasn't really something you'd see in this part of the market. Yeah, I've seen this story play out before. All of the investors are saying, speaking of some of these economies today. Earlier on the show, we were talking about the 50% tariff rate that's now being applied on Indian exports to the US. How have some of the largest economies, the Asian economies, helped or managed to deal with the impact of the tariffs that the US have imposed? Have they been more resilient than you expected? Yeah, I think the important thing here is to take a step back and consider that emerging markets are, broadly speaking, 84, 85 countries. So you have a much more diverse universe to pick and choose from. While it is true that some countries have fallen under the spotlight, such as Brazil, such as India most lately, so in other countries, for example, China and Mexico have dealt with those tariffs both now and in the previous Trump administration with more aplomb. So leaving aside the immediacy of the headlines and the way that risk assets can sometimes overreact, in the end, I think a lot of the devil is in the detail, and when that implementation happens, it's often not as bad as we've seen it may seem at first go. The second is that there are many, many economies and some of the more recent joiners to the EM universe, such as countries in the Middle East like the MENA GCC or even Saudi, which are currently in that 10% basic cap of tariffs, which is affecting more broadly the developed world. So I think in EM, it's, you know, you definitely have a lot of dispersion, a lot of opportunities to pick and choose, and they will be winners and relative losers in that as well. Yeah. So let's talk about the winners and the relative losers. Yesterday on the show, we did a whole segment about global credit spreads and how historically tight they are. And in some cases you have to go all the way back to 1995 for US investment grade to get to this level of credit tightness. So where do you find opportunities in an environment like this? And are you nervous about how tight some of these credit spreads are? TREAT And given the uncertainties that are yet to come in the next few months? That's a great question, Jomana. I think like many other fixed income managers, it's very difficult for us to make a strong case for spreads because mathematically, just looking at their history, we are at all time highs for many asset classes. What gives us comfort in emerging markets is that relative valuation gap between us and our developed market peers remains very much intact. So when you condition that that risk by bucket. So for example, if we look at the same ratings at the same duration, you're getting more spread, more yield in many emerging market locations, particularly let's say within the corporate credit asset class. And second, if you look at wider credit metrics like spread pattern of levered. Age or EBIT. Debt to EBITDA a metrics emerging market corporates remain very attractive. Fundamentally, they're very sound. I think what belies this, you know, the peak in spreads is that yields are very attractive for the current setup. So at five and a half percent for emerging market corporate investment grade credit and 8% for emerging market high yield corporate credit and six and a half percent for the blend. Yeah, this is a very attractive investment destination given the global context. Where everything is, is, is expensive, everything is tight. And so in that context, against that global growth outlook and fears on global inflation, I think we're in a good place. Yeah. So all in yield is what you're looking at. Okay. Final question, because we've been talking about the steepening of the US yield curve. Are you hedging against your longer duration exposure in the portfolio to account for that steepening of the US yield curve? This is a big discussion we've been having on invest and also with our clients, because the behavior of, let's say US Treasuries has changed a number of times during the current year. So the regime under which it operates has also been called into question. So in prior periods of crisis being long, US duration has been a safe haven. It's been actually a portfolio hedge for risky asset costs like ours. However, in the most recent period of distress, let's say on Liberation Day in early April, we saw a synchronized selloff both in Treasuries as well as the dollar, at least briefly. And so that's what gives us pause. We're trying to, you know, sort of establish what they what the reaction function of these so-called hedges are, depending on the source of that next crisis. So if the catalyst is, for example, you know, let's say an attack on Fed independence, then that hedge might not work the way we expect. And so that's what we've been spending a lot of time trying to understand.

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Dovish Fed Positive for EM: Ninety One's Alan Siow

A dovish Federal Reserve is an unmitigated positive for emerging markets, according to Alan Siow, Ninety One's co-head of Emerging Markets Corporate Debt. Siow says any dollar weakness is bullish for emerging markets, while many EM risk assets benefit from Fed easing. He adds that the manner in which developing economies have navigated the current geopolitical environment "sets us up for good period" for emerging markets. Siow spoke to Bloomberg's Joumanna Bercetche on "The Pulse". (Source: Bloomberg)

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