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Growth of local bond indices

Weekly investor research

27 February 2017

Global markets are torn between fears of Eurozone break up, which is driving down German bond yields and hopes for major tax cuts in the US, which is driving up stocks. This makes the global backdrop appear superficially reminiscent of the good old QE days, where stocks and bonds also rallied simultaneously. However, do not be deceived. Le Pen is unlikely to become president of France and Trump’s tax plans are unlikely to usher in a sustained American economic renaissance and valuations look extremely stretched. Meanwhile, the year has been good for EM so far with outperformance in all asset classes versus the major US markets. In terms of new developments, the main EM local currency government bond index is likely to welcome three new members this year: Argentina, Czech Republic and, possibly, China. In country-specific news, the fiscal numbers are turning positive in Brazil after years of deterioration on the back of a gradually stabilising economy, while the Mexican peso staged a strong rally last week as the central bank launched a new programme of intervention and Mexican real GDP growth beats expectations. We also cover news in Ecuador and Argentina.

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