Stewart McAndie: Good morning and good afternoon. I'm Stewart McAndie, a member of the Ashmore UK Client team. Welcome to everyone, and thank you for joining for today's Ashmore webinar: "Fed Cuts Catalysing Further EM Debt and Equity Outperformance." 

Today, we're joined by Alexis De Mones, PM of the Ashmore EM Debt team, Dhiren Shah, Lead Portfolio Manager of the EM Equity strategy, and Gustavo Medeiros, the Head of Research at Ashmore. I’ll have over to Gustavo to set the first scene and ask the first question.

Gustavo Medeiros: Thank you, Stewart. It's a real pleasure to be joined today by Dhiren and Alexis for another webinar. Today we'll dive into what's happening across local markets, both equity and local currency bonds. 

But let me start with a very quick recap of where we are. Emerging market (EM) assets have had a very strong run this year. EM equities are up some 27% year-to-date, led by China, Korea, Mexican, and Brazil, all up over 40%. For context, that's a big outperformance comparative to global benchmarks. The MSCI World is up around 17% and the S&P 500 is up around 15% in dollar terms. In euro terms, it's virtually flat.

In the debt market space, EM local currency bonds are up about 15%, led by Latin America and Eastern Europe. That's comfortably ahead of both the Global Agg, which is up around 8%, and global high yield, which is up something like 7%. What explains this outperformance? We see three main drivers as we've been discussing over the last few quarters and years. First, better macroeconomic policy over the last five years. Many EM countries have adopted more disciplined fiscal and monetary policies and that's now paying off. Second, a weaker dollar. Investors are still very heavily concentrated in terms of exposure to US assets, but at the same time, there's growing scepticism about US institutions and the country's alignment with Europe and Japan, which are both large investors into US assets. Add to that that we're seeing a fiscal consolidation in the US against fiscal expansions in China and Europe as this fiscal divergence obviously supports GDP and earnings growth into the rest of the world versus US as tariffs weigh more heavily on the US economy. That explains why the US dollar and US assets outside of bonds have underperformed despite the artificial intelligence (AI)-driven rebound seen since mid-April or so. 

The third factor is obviously high carry and earnings per share. EM local currency bonds continue to offer attractive carry, both in nominal and real terms, while EM macro is enjoying a second consecutive year of positive earnings-per-share growth. That's the backdrop, but obviously the question is what comes next? 

There are a few developments that we're watching closely. The first one is the US easing cycle. The Federal Reserve (Fed) is obviously cutting rates following the first meeting in September. This looks more like insurance cuts in a still-growing economy. We have an economy that can be characterised and has been characterised by many as you know, a labour market that has been characterised as a no hire/no fire. And against this backdrop, we have the very large capex in AI that most likely means that we're not going to see a recessionary easing cycle. That could obviously give EM central banks further room to cut interest rates as well. 

But it's important because when you look into the history of interest rate cuts, or of monetary policy easing, there's a much stronger performance in EM assets and global assets in general during non-recessionary easing, albeit EM also outperforms during recessionary easing to the extent that the recession typically takes place in the US. 

Second, obviously US tariffs. How EM countries manage and negotiate around these tariffs would be quite crucial for the growth trajectories. Third, we have US fiscal issues. A government shutdown, even if temporary, could have some broader implications, especially when combined with large-scale layoffs in the public sector. That took place at the beginning of administration, the DOGE initiative, and quite a lot of these workers that were in temporary, still on the payroll, are going to be let go in October and November, which accumulates together if the government is shut down. So that can create quite a lot of noise and uncertainty on labour market data that could keep the Fed on easing mode. 

Fourth, policy in Germany, China, and Japan are very important. Germany embarked on a very large fiscal expansion, and we've seen further confirmation, first with the 2025 budget being approved with further fiscal expansion and the 2026 draft proposed last week. China's evolving stimulus measures, particularly recently in the AI space, and Japan's political backdrop heading into 2026 will be important to shape the global environment. Finally, again, cutting rates when asset prices are already at all-time highs is likely to set the stage for a quite bullish 2026. 

Now let me open the floor to Dhiren and Alexis. In terms of year-to-date performance, Dhiren, can you tell me a little bit of what's been the key drivers beyond what I mentioned?

Dhiren Shah: Perfect. Thanks very much for that. When we think about the drivers, it starts with a change in the dollar. And when we think about EM equity returns, and you look at the history, and what matters, obviously there's the fundamentals behind it in terms of what a weaker dollar means, but it enables liquidity to flow into these countries and thereafter the stock markets. So, it is just simply disaggregating returns year-to-date, you know, between FX, earnings growth, and multiple expansion.

On the FX side, there has been teens appreciation in some cases and mid-single digit in others. And a few losers as well, which we'll come to in a second. The earnings growth story's been essentially, in many ways, the same as we've seen in prior years and nothing's really changed, as we’ve spent a lot of time with the companies. In the last few years, there hasn't been a focus for main allocators and so on, as all kind of money was sucked to the US. EM companies have still been innovating, still been growing, still delivering that earnings growth, and so that's just been an ongoing compounding. What that meant was while asset prices in EM were going sideways, companies were growing and so EM was becoming very, very cheap. That's the point we've been making for some time; the valuation justification for what is really some really high-quality companies that grow in all kinds of environments was actually very, very large. I guess it just needed a catalyst, right? That's the performance of the dollar and a few other self-help initiatives within EM, which we'll go through. 

So, we've obviously had that multiple expansion from a very low starting point. And as you say, looking forward, those have been the drivers and what could be the drivers going forward. The earnings progression is still strong as we look forward into next year. We think about ongoing rate cuts, the weak US labour market, the Fed's two-sided mandate that probably promotes ongoing Fed cuts, which in turn enables EM central banks to cut, propels economic growth, so we see faster economic growth in quite a few countries next year. And with valuations still at reasonable levels, clearly, they're not as dislocated and cheap as they were, but that still supports an ongoing strong outlook for EM equity returns.

Gustavo Medeiros: Excellent, how about in the fixed income local currency space, Alexis?

Alexis De Mones: Thank you, Gus. As you highlighted, a very favourable backdrop for EM local market performance. We're up 15% year-to-date, akin to the sort of numbers we saw back in 2016-17. 

Now, as Dhiren highlighted, you can break it down in components and stress the FX contribution in the context of a weaker dollar. So, out of the 15%, 7% came from spot FX appreciation. And again, within that you've had winners. And in general, what was interesting is that in spot FX terms, Asia was only up about 1%, when both LatAm and Europe were up about 12-13%. So, a big difference there in pure FX terms, and we'll come to that. 

What has also been interesting is last year it was impressive to see how in the context of big headwinds for the core bond yield markets, should be the five-year part of this set of the Treasury curve, EM local markets were outperforming. This year, what's been happening is that local markets are moving in terms of interest rates in tandem with the US rates. We've had the five-year Treasury yield down 65 basis points, and our index yield is down 50, so, nearly keeping up with the rally in front-end yields in the US, but despite that, currencies doing very well. We are still in this environment of high real yields in the end because, and we'll talk more about that, inflation has really been falling everywhere. It has been true of pretty much all markets. There's been some resistance to that in isolated cases, I would say. Brazil last year was a disappointment in that regard. But as inflation falls, there is more room for central banks to ease and that adds to the general improvement in financial conditions and improves the credit outlook. 

A very good macro backdrop, I would say. And, yes, you highlighted Latin America performed well from an equity standpoint. In local bonds terms as well because of the high starting carry in the teens, mid-teens, and the FX appreciation of the low teens that I've just mentioned. LatAm local currency bond markets are up 28% year-to-date, so very, very strong numbers and still a pretty good backdrop because yields remain quite high. So, rates will still play a very big role here.

Gustavo Medeiros: Very good, I think a common theme here is obviously the dollar weakness and finally investors realising they have a little bit too much exposure. 

Moving on to the outlook part, the market is pricing in slightly more than four cuts of 25 basis points by the Fed within the next 12 months. I think it's quite fair to be honest, but if there would be any skew in terms of bias in my view, you'd have some downside to rates from here simply because again, the labour market data has been on a softening trend and particularly the latest ADP National Employment Report that came out today with negative numbers both last month from a revision of more than 50,000 jobs and this month -50,000 jobs destructuring in the private sector, particularly considering that we might not have a payroll report at all this Friday, it may be a longer situation, suggests that we have a bit more downside in rates than upside even vis-a-vis what's priced in at the moment. How do you see EM local currency performing in this scenario, Alexis, if the current rates are fairly priced, or slightly biased, towards more easing?

Alexis De Mones: I mean, regardless of whether we have three-and-a-half, four-and-a-half, or five cuts in this rate-cutting cycle, I think Powell himself said it was the first of a series. He didn't say how deep and if we’re going to see consecutive cuts, but rate-cutting cycles are positive for our market.

So, we've already talked about how the rate cut obviously on trend weakening the dollar at the margin. It's not the only reason why the dollar has been weak, but it's been an important reason and particularly against the majors, and we'll come to that. So better FX performance. Also, it eases global liquidity conditions. The dollar is offered, credit markets are open, spreads tighten in that environment. The weaker dollar obviously also lowers the stock and the burden of foreign currency debt for those markets that have large currency debt. So, it removes all sorts of stress that bears on our market in local and hard currency, in rate-cutting cycles, particularly GBI-EM, so our index has performed quite well. 

We don't have that many rate-cutting cycles since the index was created, but we've had three. And in general, the index has returned 7% to 9% in the 12 months following the start of the rate-cutting cycle, having already performed before. 2019 was a bit frustrating because then we had COVID, and the numbers don't show a flat performance despite a very difficult macro backdrop there. But it's a good environment. I just want to maybe spend a minute on the importance for the euro/dollar. There are no cuts priced in the euro forward curve, and there are a lot of cuts priced for the dollar curve, which means hedging cost of your dollar assets back into euro has been cheapening – about 50 basis points cheaper than where it was just six months ago. It encourages not so much the capital repatriation, but the hedging of foreign assets by European investors. It's been very good for the euro as everybody knows, and it's been very good for central European currencies. So, central European currencies and in general CMEA currencies have been one of the main themes for our local currency funds over the last six to eight months, and it's been very rewarding.

Gustavo Medeiros: Excellent. Thank you, Alexis. Without trying to steal any of Dhiren's thunder, on the similar analysis that Alexis did, we have more data for the equity space. We have data since 1988. And if you look at the 12 months following the first cut, performance in recessionary environments, we had EM equities going up by 5.2% within the next 12 months. And that's excluding the pandemic because during COVID, EM equities went up by 33% on the 12 months following the first cut. Obviously because China was the first in and first out of the lockdowns and led the rebound. There is no recession. And that compares with the S&P down 9.4% and world ex-US down 12.5%. In no recessionary environments, EM has gone up by 13.4% on average. Within this 12 or so since 1988, the World went up by about 6%, so a half of the EM and the US went up by only 11%. Now in the equity space specifically, the AI narrative has been clearly dominant so far. Investors are obviously favouring Korea and Taiwan and recently China. Is that something that is likely to continue going forward, Dhiren? Any specific details about that?

Dhiren Shah: When we think about the AI build, and the visibility, and the need for it, it still seems very significant to us. Yes, there's a multi-year view. There are strategic reasons. It's driving innovation, it's driving the ability to survive. So, it's driving the ability to avoid being disrupted. 

What we have is the companies that are building this, so oligopolies, duopolies on a global basis. And what's interesting right now is that one year ago, there was a volume story, but the complexity of building these data centres and these chips is increasing as you're going through each generation. What that means is the number of players is diminishing and pricing power is increasing a lot, and so that's great for the supply chain. Companies within Korea, Taiwan are on the cusp of it right now, benefiting from that volume, that content growth, that pricing, and that will really drive margin expansion. And while these shares are still trading at, you know, been very good multiples. So, we find that the valuation story combined with very, very strong fundamentals in parts of Taiwan and Korea, that's the platform for sustained ongoing outperformance. So yes, on that part we have been constructive, as you know, as we have discussed, and we very much see that accelerating going forward. 

The China part is obviously a bit different. China is, trying to build their own chips, but they're also deploying what's been provided globally but with a lot more efficiency. We are seeing them being deployed in an aggressive way across China, from government to companies. What this means is productivity gains and some of the big drivers of Chinese manufacturers taking share over time through this innovative R&D, through low cost at scale, and through productivity. I think AI is going to be one of these great enablers which will see vast swathes of Chinese companies taking share globally in several industries. And I think AI will be the backbone of it because they're going to be one of the most aggressive users.

Gustavo Medeiros: Very interesting. Yes, we've heard a commentary from a sell-side global strategist that was an EM FX global strategist before suggesting China is verifying the cheap AI opportunities that has been left behind for a while. But let's move on a little bit.

Latin America has been a strong performer over the last 12 months. But in the next 12 months, I think what is going to dominate the news flow will be elections, right? We have elections in Chile in November, the second round in December. Then we have elections in Peru and Colombia in the first half of next year. In Brazil, October in 2026. If you look at the data, the markets start reacting ahead of elections something like 12 months before, but definitely six months in the run-up to the election. It's going to be all about that. I think the general theme as we've been talking about is the political pendulum swinging from the centre and far left to the centre to far right. There will be all sorts of flavours in that. Very, very fragmented race in Peru, raising a lot of questions, but I think it's going to be very hard for centre and far left regimes to remain in power. Mexico, for example, has already seen better policies with Claudia Sheinbaum despite the fact that it's the same power, the same party. Alexis, where do you see the main opportunities in Latin America?

Alexis De Mones: Yes, the election backdrop is interesting. There's been a lot of excitement about that internationally, all investors are very focused on that. Locally, people have gone through these cycles before and they see the flows coming and then they see the disappointment. Even when you have political change, the fruits of reform obviously don't accrue right away. So, it's super important to be ‘eyes open’ in terms of our valuation and what's happened before you engage. 

We are looking at each and every one of those situations carefully, and we can be tactical. As you said, Mexico, the good thing is it's not about an election anymore. Certainly, that wreaked havoc a little bit in some of the Mexico exposures last year, but Claudia Sheinbaum is off to a very good start. She's now implementing a reform agenda, and she's built a good relationship with Trump. It's definitely helped. 

One thing we've noted is how successful she's been at addressing the really high level of Pemex's indebtedness and the implications for Mexico sovereign debt. So, there are great opportunities in the sovereign debt space in that regard, where most of the debt was issued. And the debt buybacks by Pemex and other financial engineering have really led to outsized returns there, which we still see some potential upside there in Pemex bonds. But in local, not a lot happening in Mexico from a local point of view. The backdrop for rates is favourable, but this is not where we see the most action.

You know Brazil is really where a lot of the action's going to be. We've already had a strong rally, but rates are still at 15%. So obviously the BRL is still supported by very high carry, and a valuation that is not stretched. Now what is good for BRL from an FX point of view evidently is that the Brazilian central bank is probably going to keep rates on hold for a little while longer until the first quarter at a very tight level of nominal bond yields. But then you're going to have the election trade really starting. So, we are not really quite trading the election quite yet. People will be disappointed we're not calling the election, which is in about a year's time. We know Lula is going to run. We know Tarcisio de Freitas could run for the centre right. There's going to be a few others throwing their hat into the ring, so it's going to be volatile. But that's one we like because obviously of the carry characteristics, so it's the favourite from a risk/reward, but it's going to get volatile next year, so we'll manage the position accordingly. 

And then in the rest of the region, interesting elections are imminent in Chile. The market is completely on the page that Jose Kast is going to win. So, a centre right president following a centre left president. Now that trade has been priced in and now it looks like, as always, the leftist President Jeannette Jara is coming back in the polls, so there's going to be a little bit more volatility. We are not really taking a big strong stance here, and it's not too costly to stay a little bit away as the yields are relatively low. And in Colombia, we have a little bit more time. The elections are in May next year. Very high yield. I mean it's an economy with a lot of macroeconomic imbalances. Residual inflation is pretty high, but the fiscal deficit is really, really high. Particularly high. Growth is mediocre at best. The president's not able to address any of those, so they need a change in recipe. They'll hopefully get it, but many candidates are lined up. The outcome is extremely uncertain. We would choose to be quite defensive on Colombia, but because of the high carry, it's been a market favourite. And also, they've done clever foreign currency borrowing that has really supported Colombian peso. So, the technicals have helped here. One to watch out for.

Gustavo Medeiros: Very good. Well, thank you. A very measured glass half-empty analysis from my favourite French fixed income manager. Hopefully Dhiren's going to cheer us up a little bit more?

Dhiren Shah: All right. Look, in terms of visibility, as you said, in Mexico, there was a lot of uncertainty and in many ways there still is some left. But over the last year, as we got a better picture of how the Mexican and US administrations would work together, we bought into that weakness in Mexico. We see the outlook there to be actually pretty strong, even if it’s still not 100% clear. 

The big thing we're waiting for is the ratification of USMCA 2, with Trump going out there and putting all the detail into the things they've been working on behind the scenes. Once we get that, and provided it's all good, it could be a really interesting time for Mexico. 

Historically, we know Mexico grows at 2-3%. It got below that under the prior government, but we’ve now got a new business-friendly government in place. And when you look around at the tariffs and the effective tariffs Mexico's paying, it has one of the lowest tariffs around the whole world. 

We speak to manufacturers, Asian manufacturers, global supply chains, and one of their preferred destinations is Mexico. Things are broadly on hold because if you're a manufacturer, you're just waiting to see the details. But once the detail comes, there is the potential for Mexico to grow at 4-5%. And the market obviously remains very cheap. So, Mexico for us is one of the more interesting markets in all of EM. 

Onto Brazil, it's a market where we've taken some profits because it's still uncertain. It's Brazil politics, so who knows. The inclination is to think there will be a change in leadership from centre left to centre right, but there's still a long way to go. What we do know is within the risk/return scenarios is if we do have a change of government, there's a lot of upside in Brazil. The currency is cheap, the stock market's done well, but it's still very cheap, and there are still some great companies out there. So those are the two places really focusing our time and attention today. We feel a lot more conviction behind Mexico, with a positive inclination towards Brazil, where let's see what happens and we'll adjust accordingly as we get the details.

Gustavo Medeiros: I love that much more. Like 3-4% growth in Mexico. That's the bullish view that I was looking for. Thank you, Dhiren. So, what about Asia? We talked a little bit about AI and the productivity story in China. The other side of that is obviously my favourite structural long-term fundamental story is India, which has been underperforming the rest of Asia due first to some cyclical economic headwinds. Then you had the 50% tariff from the US, the HP1 visa. The environment foreign investors have been getting out of the country, and, you know, the short-term cyclical growth still has some headwinds. What would turn India around, and what would make you shift your portfolio?

Dhiren Shah: It always goes back to how we think about things, quality growth with reasonable valuations. As you said, India has that long-term quality growth. There are some short-term headwinds around those growth dynamics. There's slower employment, some few micro stresses in parts of the economy. Private capex is a bit weaker, and that's obviously not helped by what's going on between Trump and Modi. But the big thing is valuations, right? So, the market got ahead of itself because where people struggle to invest in China over the last few years, the money went to India and it overplayed the long-term story, which is a good one. I think, for us, India is one of our largest underweights because of the valuations, and because of some of the cyclical macro challenges. For this to change, sometimes it just needs time. You need to grow into the multiple, as we say. Companies need to carry on growing and then at some point the valuations become attractive. Or if there is a sharper sell-off in the market, there will be natural buyers there because it is a really good long-term story. But in the near term for us, there were just much more compelling opportunities elsewhere. Some of those we've discussed already, what's going on in China, Brazil, from the north Asian countries, and so on.

Gustavo Medeiros: Excellent. What about for local currency, Alexis?

Alexis De Mones: We're very active in Asia, and the main theme is that we're starting to see the impact of tariffs being felt in domestic demand and external demand. India is one example of that evidently. The good thing is that all of these countries have a lot of room for proactive policy responses. There is room on the monetary side in most of the Asian economies, and India certainly is one of them. And they're pretty proactive in Indonesia as well, and even in places like Korea. 

And then in most of these economies, again, you also have room for a fiscal policy response. So, if you look at India, they are reforming the Goods & Service Tax (GST) bands, so that's a slight reduction in the consumption tax there. That's one of the fiscal stimulus responses. And they've also had for some time already actually a much more dovish monetary policy. So, they've been cutting rates. Interestingly, they had a meeting overnight, and they haven't cut this time, which came as a bit of a surprise. They've stayed on hold at 5.5%. But if you go to the five-year part of the curve, you have bonds trading at close to 7%. And the real rate of inflation at the moment is about 3.2% at current levels of inflation. Inflation having fallen quite rapidly recently. So, it's very attractive from a rates point of view, and at the same time we’re not overly concerned about the FX because the balance of payment is healthy, because they have policy response, and because they have a lot of reserves as well, which they have used in the past. 

So, it's really one of these markets where you can really pick a lot of carry, and play out at the curve, and really play the flattening of the curve. It's a relatively steep curve, so it's a top two duration trade right now in our portfolio. Indonesia also has room in terms of policy response in this slightly more uncertain external environment. They're not as exposed to tariffs as India. And they've just gone through a change in cabinet, so the market has been pondering what the changes mean. They're moving from, I'd say maybe an overly conservative macro policy mix. A very orthodox set of policies with fiscal spending caps and pretty tight monetary policy. Now it looks like they're loosening all of that. They're still sticking with the fiscal spending cap, which investors were looking to for reassurance. But we're going through a bit of probably pro-growth policies, so maybe there's going to be slightly better support for the currency from this point onwards, but we're still in a bit of a transition there. The rest of Asia are mainly equity markets, Korea, so I'll let Dhiren cover those.

Dhiren Shah: I guess Korea doesn't often get a mention, so we should talk Korea. Nicely set up for me, thank you. So, beyond all the things we've spoken about, Korea has been one of these markets which has been a perennial frustration for equity investors. You've got these world-class companies with leadership positions, innovating, doing all kinds of really cool stuff, but you get lost in some of the Korea discount, which is around bad governance. What's interesting over the last 18 months, and more in particular the last three to four months, is the changes we’ve been seeing and this broad agreement for corporate governance improvements. And so, a number of laws have been enacted. We've got a majority independent board, and audit committees, and so on to far more complex things. And what this has meant in practice? You've got some new companies that are market leaders trading at half the multiple of their US counterparts just because of this Korea discount when they should be trading at a premium to them. People have looked at these markets as long as I did. There's a lot of sceptics out there. And so, as these changes happen, as the market wakes up to it, there are some really, really impressive opportunities in Korea. I think that's one of the individual self-help stories when you're talking about reforms and capital market reforms. That's something that, you know, we are increasingly considering within our portfolios.

Gustavo Medeiros: And a lot of noise in politics as well has gotten out of the way now. It seems to be clearing out and resolving. We’ll just highlight on the India story that valuations seem to have corrected a lot where it's still a little bit expensive, particularly the medium and small cap space. But the overall market has rerated quite significantly vis-a-vis the rest of Asia, particularly even the rebound in Korea, Taiwan, and China. What about eastern Europe, Middle East, and Africa? What are the opportunities there, Alexis?

Alexis De Mones: A lot of opportunities in that region. I already covered Central Europe, which was and remains a very good FX play, where our favourite topic right now is Hungary. There is an election; you could have a change in leadership in Hungary. What has been very important for policymakers is trying to steady the ship ahead of the election. In Hungary, they don't want to create conditions where Prime Minister Viktor Orban would be suffering from higher inflation. So, the central bank's been quite hawkish, and it's been very good for Hungary foreign. It's our top pick in central Europe FX. And then you have the whole of the CMEA complex where it's really been a boom in activity, and cross-border flow, and investment in the whole of Africa, Sub-Saharan Africa, local currency debt markets. 

Over the last two years, we've been involved obviously, I mean Türkiye to one side. Türkiye is a very good carry play, where obviously politics have come in the way a little bit, but that noise seems to be subsiding. And there are amazing carry opportunities in the likes of Egypt, Nigeria. Nigeria being our top pick for total return, both in the whole of the CMEA region and obviously the bigger position in our Frontier Debt product as well. Inflation's coming down quite nicely. A little bit more slowly, but coming down in Nigeria, and coming down quite rapidly in Egypt now. The beauty of that is as obviously inflation is coming down, the nominal yield on the short-term money market and short-term bond instruments gets even more attractive in real terms. And then we can go up the curve and benefit from even rates tightening in the two, three-year part of the curve where we've started being involved in Egypt notably. So, lots to do there, and some of the strongest contributors to our returns this year.

Gustavo Medeiros: Thank you. Anything on the equity side you want to highlight, Dhiren, forward looking or backward looking?

Dhiren Shah: I've got a lot less to say about this, and so this has been a much smaller part of our allocations. We've tapered some of our Poland exposure, as some of the fiscal consolidation hasn't come through. We see a bit of a slower economy, and that's going to have some impact on companies. Within the Middle East, our general view has been quite negative in oil. We've had this view for the last 12 to 18 months that it impacts naturally some of the oil-driven economies. But we have been constructive on the likes of UAE and Abu Dhabi, which have been substantially insulated from that and are among the fastest-growing countries in the world. So, these are interesting in terms of impact on portfolio but much more modest. But, you know, it's been helpful. These have obviously underperformed versus some of the other markets, which have gone up quite substantially.

Gustavo Medeiros: Great, thank you. Stewart, any questions from the audience?

Stewart McAndie: There have been a number of questions. I think we covered most of them. There's a lot relating to Brazil, LatAm, etc, which I think we covered. But looking at China, there was a question specifically about speculative plays driving the market and centrally-demanded credit creation continuing to boost stocks. Dhiren, can you maybe make some comment about your exposure to China and your thoughts relating to that topic?

Dhiren Shah: ‘Speculative plays’. Okay, so we've said this for a while. The Chinese government has seen, as a medium-term policy objective, and it's a rational one, to have a much more meaningful equity market as a form of financing and a way of allocating capital around the economy. And we go back to over a year ago, they essentially put a floor on the market. The government institution started to buy the stock market. And this has happened over decades, this happens periodically. And so once again they put that marker there. 

What you have in China is trapped capital. So, we all know about the vast pool of savings, one of the largest pools in the world, which have only increased in the last four or five years because it hasn't been spent. Consumption's been weak and rates have gone down. So, deposit rates have gone down, all kinds of rates have gone down. Real estate prices obviously are still falling. And so historically if you're middle class, or the upper class, whatever it was, you invested in real estate because that was a primary source of value and that's what you retired with. And so, as the outlook for real estate still remains pretty challenged, the question is where does this money go? So, it's trapped capital. And then you've got a collection, and it's not just a collection, it's a vast, vast range of companies that are growing their revenues above GDP. They've got margin expansion, they've got tons of cash, strong balance sheets, and they're paying dividends. And so, from an asset allocation standpoint, you sit in there. If you're a local investor, it makes so much sense to shift out of assets yielding 1% or 2% or deposits not yielding much, and putting it into equities which are yielding 4% or 5% and growing in absolute terms. So, there's this reallocation of capital, which we've been waiting for, for some time, because it's an obvious one in a market which is clearly undervalued.

So, global investors are coming into China, and local investors are obviously reallocating. That's one of the reasons why you've had from a very low starting point of valuations, and sentiment, and all the things that we know about, that's why the market's gone up. It is animal spirits just coming back to China. It's a cycle, right? We're thinking about things happening in cycles, but they were really kind of hit after anti-corruption, and COVID, and so on. And we've seen them improve behind the scenes, but then sometimes you need a catalyst for this to happen. And that's the way markets work, and that's obviously happened this year with AI and all the innovation. We see Chinese companies taking over a number of different industries around the world, and that's ongoing. Humanoid robots are going to be the next one. And so that's getting the imagination of local investors as well as global ones. So clearly with all of this, there's always speculation. There's speculation in every stock market, US, the UK, well maybe less so in the UK, but a number of stock markets. And there is some of that there in China, but where we see in terms of valuations and we see the outlook, it still seems very manageable to us.

Stewart McAndie: Gus, maybe you want to take this one. It's specifically about investors being worried about institutional deterioration in the US. Just a question asking how can that affect the short and medium term, and spillover into EM as well?

Gustavo Medeiros: Sure. I think in the short term there are two specific events that people will be focusing on and worrying about. We mentioned already the shutdown and its impact. It's likely to be temporary, but it's one to watch, particularly because it can change the reaction function of the Fed around the next couple of months and quarters. 

The second one is obviously the transition on the Fed, which is likely to happen in May next year. And investors have been worried about any potential loss of Fed independence, particularly after the Trump vs Cook lawsuit, with the US administration having tried to replace or sack one of the governors, Lisa Cook of the Fed, for cause. And it was a relatively not straightforward cause, I would say a light cause, and now there's a lawsuit going on in the background of that. This lawsuit could be important because depending on the decision of the Supreme Court, that could turn into jurisprudence, and that could actually mean the bar for interference on the Fed is lowered. So that, and who the next Chair of the Federal Reserve is, will be two matters that will be important. 

I think the base case here is that we're going to get something sensible both from the courts and from the next Fed Chair. But if it's something that is perceived as institutionally deteriorating, i.e. the government is interfering with Fed autonomy, then that's going to be a scenario where the dollar should weaken much faster, right? It's not going to be something that happens without volatility. We would actually rather not see that, but it's something that doesn't pose a significant headwind for EM. Quite the other way round, it could be a very strong headwind for the dollar. 

Aside of that, there are big picture things that are very hard to comment on in terms of the strategic relationship between Europe and the United States. 

There's a huge amount of European capital in the US, a very large overall allocation. I think Europeans have been a bit more discouraged by the strategic relationship in defence and the potential strategic relationship in energy that is coming through. I think that some of these efforts towards more capital spending in Europe will attract some private sector capital as well, which will allow for the recycling of capital that has been, you know, the surplus capital, surplus countries like Germany, Netherlands, etc, that have been recycling quite a lot of their surpluses into the US will now start recycling more into Europe. And that's why we have a bullish long-term view on the European single currency. But that's a bit longer term, and not a three-to-nine-month story.

Stewart McAndie: Thank you. Well, we've been about 45 minutes now, so I think we'll close now. Gustavo, Dhiren, Alexis, thanks very much for your time today. And to all attending again, thank you for joining today's Ashmore webinar. If you have any other questions or would like any follow-up information, please contact your Ashmore representative. This concludes today's webinar. Thank you.