Cyclical Factors Align for EM Outperformance

Aug 22, 2025

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EM economies driving improvements in global growth and liquidity. Inflation leading indicators edging lower for most major DM and EM economies.
Tailwind for risk assets intact as synchronized global easing cycle broadens out. Our liquidity-driven regime model now favors EM over DM equities for the first time since 2018.
We reiterate our long exposure in Brazilian and Indian equities; long KRW (vs CNH) and long CAD (now vs JPY); and long 2-year UK bonds. We are adding short AUDUSD based on tactical and cyclical model alignment.

DM

UK: Downside risks to growth, inflation fears overblown, yields too high
Japan: Signs of peak inflation, path of least resistance is a weaker yen
Canada: Growth LEI turns higher, switch from long CADCHF to long CADJPY
Australia: Falling inflation to keep RBA easing, short AUDUSD on tactical/cyclical alignment

India: US-India tensions a chance to add to long equity exposure
Brazil: Still long equities as focus shifts from inflation to growth
Mexico: Drop in bond yields justified by falling growth and inflation
South Korea: Fiscal still boosting growth, but LPPL bubbles suggest tactical caution on equities