JPMorgan: EM Asia Local Markets Compass: Paring Risk
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
JPMorgan's latest EM Asia Local Markets Compass advocates paring risk amid shifting dynamics. Asian interest rates edged lower this month, yet regional duration continues to underperform the broader emerging markets complex. This divergence stems from AI-driven economic growth and the conclusion of easing cycles, placing Asia in a distinct monetary policy phase.
The spread between Asian rates and other emerging markets has widened. Historically, Asian rates have traded higher than the rest of the EM index in less than 7% of months. Meanwhile, regional equity prices and earnings revisions continue to climb, supported by loosening financial conditions.
The bank's systematic duration model maintains a net short stance across most curves. AI disruption anxiety has pushed the SFR Z6Z7 curve into negative territory. However, a relative value trade shorting Asian rates against US rates demonstrates resilience, as North Asian hardware manufacturing remains less susceptible to AI deflation.
In foreign exchange, favorable seasonal tailwinds are fading. JPMorgan recommends closing long positions in CNHSGD and THB, taking profit on the latter due to policy responses targeting the overvalued baht. The bank retains an overweight position in Asian FX via the Malaysian ringgit. Tactical ideas include paying MYR 5-year NDIRS and going long on R519s.