“Typically, a very strong dollar is catastrophic for emerging markets. And yet, we have seen periods this year where emerging markets have outperformed US equities. That is because EM currencies, particularly in Latam, are already cheap. Moreover, sovereign dollar-denominated credit spreads in the emerging markets universe typically widen with a strong dollar but they have narrowed in a few markets this year. Again, this is evidence that the monetary tightening cycle is very advanced in emerging markets which is attractive from a real yield perspective. Interestingly, Latin America with its commodity export strength has gotten very little credit this year. Earnings in the region have been stronger than in Asia and yet the relative forward multiple has favored the Asian markets. In a nutshell, we prefer Latin America over Asia within Emerging Markets and have a preference for EM over EAFE at the moment.”

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