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EM Currencies, Local Bonds Top Picks for 2020 – JP Morgan Asset Management

Last year was wracked by uncertainty, with trade tensions and a sharp reversal in rates weighing on growth. With the apparent relaxation of trade tensions and a consistent, supportive monetary policy environment, 2020 may be the year of revitalised economic growth, JP Morgan Asset Management analysts argue.

Jan 14, 2020 // 4:30AM

In terms of fundamentals, the global economy is in a very different place at the start of 2020 than it was a year prior. At the start of 2019, the Fed had yet to begin cutting rates – a sharp reversal from the four hikes that were seen a year prior. But by the end of 2019, there had been 3000bp of gross interest rate cuts globally.

Trade tension weighed on global growth throughout the year, but the phase 1 trade agreement reached between the US and China in December 2019 seems to suggest the economy may have bottomed, the JP Morgan Asset Management argued in a recent note.

“Central banks now look to be on hold and, in the absence of any sudden shocks, this environment should prove supportive for risk – though, at this stage of the cycle, selectivity is as important as ever.”

“In emerging markets, sovereigns and local currency bonds benefited from the dovish monetary policy environment, returning 15% and 12.3% respectively. Such strong performance suggests that opportunities are becoming more scarce, with spreads at historically tight levels. However, we do see opportunities for selective investors in areas such as emerging market currencies, which underperformed relative to other assets last year.”

With trade tensions cooling and a supportive monetary policy environment in 2020, an economic recovery could be on the cards.

“We particularly favour sectors that have lagged the corporate bond rally: emerging market currencies and local emerging market debt are currently our top picks. We also still favour securitised markets and investment grade corporate bonds, as global investors continue to search for high quality yield. Investors will need to remain cautious as the year goes on, with key events such as the US election on the horizon, but for now, there is a case for renewed optimism.”

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