Economic growth in emerging markets is set to slow “sharply” this quarter weighed by China, Russia and the spread of tighter monetary conditions, JPMorgan analysts said on Monday.
“China’s adherence to its zero-COVID policy, Russia’s recession and tightening global financial conditions are set to pull EM growth sharply lower this quarter,” wrote Luis Oganes, head of currencies, commodities and EM research, and Jonny Goulden, head of EM local markets and sovereign debt strategy at JPMorgan.
Emerging market currencies are likely to underperform as U.S. dollar strength continues and there is a risk to EM economic growth, they said.
The dollar on Monday hit a 20-year high against a basket of developed market currencies and an index of EM currencies touched its lowest since November 2020.
On local market debt, the U.S. bank retains underweight as inflation in the region is revised higher, as are expectations for higher rates as central banks continue to focus on inflation.
They remain neutral on foreign debt with a market weight on the EMBI global diversified index “as EM sovereigns remain at the mercy of rates but cushioned by a combination of front-loaded pain and cleaner technical.”
On EM corporate credit, they keep a market weight on the CEMBI as “the uncertain market environment and macro risks are mitigated by strong standalone fundamentals and supportive technical.”