Stephen Rudman: Good morning and good afternoon. My name is Stephen Rudman. I'm a member of Ashmore’s New York City -based client team. Welcome all. Hope you're enjoying the beginning of the holiday season and off to a great start. Today's webinar, hopefully timely and important as always, is Ashmore's 2025 Outlook with Gustavo Medeiros, who I think you all well know is our Global Head of Research. 

The discussion today is going to offer a broad outlook for the global economy, but covering the implications and opportunities in emerging markets (EM). We will be covering five or six different things today, and there will be some slides to support Gus's outlook. First and foremost, we've got to start with a review of 2024. It's clearly been an interesting year. So I'll hand it off to you, Gus, to give us an update and a review to where we stand in 2024. Thank you.

Gustavo Medeiros: Thank you very much, Steve. And thanks everybody. Yes, 2024 was an interesting year. We had three themes highlighted in our outlook: resilience, tails, and inflections. Resilience was about the resilient backdrop for the macroeconomic environment in EM, with many high yield countries implementing structural reforms backed by, and macroeconomic rebalancing backed by International Monetary Fund (IMF) programmes, which allowed for a much more resilient credit worthiness. We saw that playing out with better-than-expected economic growth in emerging markets and subdued inflation on the back of good policymaking early during the COVID era. But also importantly, many more upgrades than downgrades across the EM space. So, we had a pretty favourable scenario, a pretty favourable macroeconomic backdrop for EMs during that period, and that's what the resilience was about. 

When we talked about tails, we talked about the scenario for interest rates, thinking interest rates were at some point potentially pricing a ‘no landing’ scenario and at some point, pricing a ‘hard landing’ scenario, coming from more or less balanced beginning of the 2024 year. And we had precisely that in 2024 as well. Investors that were actually focusing on the fixed income markets could had opportunity of, fading when the market was pricing in deep hard landing at some point in 2024. And we've hit the price levels or yield levels that would suggest the Federal Reserve (Fed) would cut fairly little, equivalent to a ‘no landing’ twice during 2024. So, active investors could take advantage of that. 

Finally, inflections was really about elections – elections of consequences, and inflections in terms of economic policy were the most important elements we were watching for in elections. We did have inflections in terms of political changes, particularly in Mexico, India, and South Africa. In Mexico, we had a negative inflection during 2024 when the Morena Party got a supermajority in Congress and the outgoing President AMLO still managed to prove some of what he calls structural reforms, but were negative steps towards the end of his mandate. In South Africa, we had a Government of National Unity ushered in after the ANC lost its majority and that boded pretty well for South African assets and for South African fundamentals. In India, Modi didn't manage to get the supermajority he was hoping for. He didn't even manage to get the majority in parliament, which is now running under a coalition. But that has not had any impact in terms of policy direction. In terms of economic policies, India is likely to keep on an austere framework for the fiscal accounts and keep on in prioritising investments to develop the economy. 

But the ultimate policy inflection that really mattered was in November when Donald Trump won the US presidential election as we thought would be the case when we published our research. We also talked about how it's very likely that some of the policies or some of the more aggressive and concerning elements of the Trump policies are likely to be reined-in by market dynamics, by inflation, and also by now his policy advisors. We're going to talk a little bit about that within the rest of the webinar.

In terms of the 2024 review of equities, we’ve had a pretty strong performance for global equities so far. The MSCI ACWI index is up around 18% year-to-date, with another year of outperformance of the US stock market. EM stocks were actually doing quite well, and what we thought would happen, which was an inflection of earnings to the positive side, so earnings-per-share recovery in EMs did take place. EM earnings-per-share are tracking for a 12% increase approximately in 2024. Nevertheless, since the market started to price in that Donald Trump would win the election, EM stocks de-rated, which has had a significant impact on total returns for the year. So EM stocks are now tracking something closer to 6%. 

EM fixed income markets, the hard currency part of the asset class, have been quite resilient, and EM high yield has been outperforming investment grade as we thought it would. The barbell strategy worked quite well for 2024. We're starting to look at slightly tighter levels on the high yield. Also EM local currency faced obvious headwinds from a stronger dollar, particularly during the beginning of 2024. And since Trump started rising in the polls, the dollar has strengthened, and this decline in EM FX has meant EM local currency bonds on an FX unhedged basis are close to flat in dollar terms, are doing okay in euros, and doing okay on an FX hedged basis, but in dollar terms, they are pretty pedestrian returns. So that's, I think, a good wrap-up, Steve.

Stephen Rudman: Thank you very much. Again, generally, both EM bonds and stocks are still posting some attractive returns year-to-date, which is nice. With that, you brought the point out that, elections have implications, right? So let's get right to it. Let's talk about the trade wars. let's get into it. Tell us what your thoughts are and where we're going.

Gustavo Medeiros: Absolutely. On Slide 2, hopefully on your screen right now, you can see two charts, one showing US imports by country or by region. Two things to highlight here. One, how there's much less trade taking place between China and the United States from December 2015 to September 2024. So from slightly before Trump won the election until recently. And if you look at the countries that won most market share and have been exporting much more to the US, we're talking about Mexico, and we're talking about India, Taiwan, Korea, and Vietnam, that gained a lot of market share. 

Now if you look at direct exposure, Figure 2 shows exports to the US as a percentage of the country's GDP. So obviously Mexico and Vietnam are at the top of the table. Mexico exports the equivalent of around a quarter, both Mexico and Vietnam export the equivalent of around a quarter of their GDP to the United States. Interesting to see how Vietnam gains so much since the first Trump trade war, which started in the second half of 2018 in earnest. But most of the Southeast Asian countries: Taiwan, Thailand, Malaysia, South Korea, are countries to highlight. Interestingly again, if you look, China is the 30th country in terms of their exposure to the US, the percentage of GDP is much smaller. So EMs are obviously in the firing line, if you will. 

There's going to be quite a lot of noise coming in regards of tariffs. We already had the opening salvo a couple of weeks ago, after Trump said that he would add tariffs of 25% to Canada and Mexico, and 10% to China if they wouldn't stop the flow of fentanyl to the United States. Encouragingly, that prompted a visit of Prime Minister Justin Trudeau to Donald Trump and also a quick phone call from Claudia Sheinbaum, the President of Mexico, to the US. And we've actually had a much better environment since. The Canadian dollar and the Mexican peso rebounded relatively quickly, and within two days they'd retraced all their losses, which obviously means the market doesn't take this 25% tariff threat as a serious possibility. Otherwise, these currencies would be trading much, much weaker. 

I think it is important to take a step back and think about the trade war. If you look at the first trade war, we actually had a negotiating stance throughout that, and the tariffs were implemented on a sequential basis on different product lists. The US started tariffing products the US was importing from China that were very easy to replace – plastic toys, textiles, or intermediate goods where you have ample availability of substitutes. They left alone products that will have a more direct impact to inflation, consumer goods, and intermediate goods that are not easy to replace on the list for trade. We never got to increasing tariffs meaningfully to the list for trade for because the US and China cut a deal that essentially asked China to purchase more commodities from the United States. So we think the first Trump administration tariffs are an instrument to negotiate some sort of deal. Different than the first Trump administration, we think we're going to have a much more comprehensive deal that the US is going to try to negotiate this time around. And that can have implications for EM that could be actually slightly more constructive.

Stephen Rudman: Right. Thank you. So with that, what is the underlying goal that the Trump administration is trying to accomplish relative to building a different footprint for global trade?

Gustavo Medeiros: That's a helpful question, Steve. If you look at on the next slide, Slide 3, you have four figures there that basically help to understand, particularly the two first figures at the top. Why does Donald Trump, JD Vance, Robert Lighthizer believe that you actually need to engineer a rebalancing of the US economy vis-a-vis the other economies. If you look at the Figure 3, you can see that basically US industrial production has stagnated since 1994, which coincided with Mexico joining NAFTA and also later on in 2001, China joining the WTO. If you look at the yellow line, imports in real terms have, on an ex-petroleum basis, surged. So, the component average growth rate here is significant, and the industrial production growth rate is insignificant. You can see on Figure 4 that China obviously is a big part of that, but Germany and Japan are also large exporting, export-led economies that have gained quite a lot during this period and managed to increase their share of exports in general. And quite a lot of that went to the United States.

Now, let’s look at the origin of the problem. There are two phases of these trading imbalances that for one of them is industrial policies by these surpluses countries, you know, that are multifaceted, but in a nutshell, policies that are depressing the overall wage of their labour force, vis-a-vis productivity of their economies, vis-a-vis productivity of their industrial production sector, are at the root of this extraordinary competitiveness of these countries. Depressed wages obviously can be translated into higher saving rates, into some other part of the economy or either the government or the private sector. And that's a key part of that. 

But the other reason behind the imbalances, you can see on the Figure 5. The US has been running a twin deficit for the last three decades essentially. And in economies that have large fiscal deficit, if the private sector does not increase the level of savings to compensate, that is going to most likely translate into a large current account deficit as well. That's why when you look at twin deficits, particularly post after Trump approved the Tax Cut and Jobs Act, which started a series of pro-cyclical fiscal deficit, you actually had an increase in the twin deficit in the United States. 

If you look at Slide 6, you can see that the US has very low saving rates as a percentage of GDP. And you can see on the opposite side that the surpluses countries, particularly China, Japan, Korea, Taiwan, Germany, have actually very high levels of savings. So you need to close the savings imbalances rate in order to actually close this imbalance. That's where I think there is a lot of room for more thoughtful policies. 

We wrote a piece sharing our first thoughts on the Trump win and the implications for EMs of Trump 2.0. We wrote about the likely policy levers that Scott Bessent, an advisor for the Trump campaign, has been talking about. Scott Bessent is Trump’s pick for Treasury Secretary, and he's talking about a much more thoughtful approach to rebalancing trade and these imbalances that have grown. Tariffs are an instrument to negotiate a better deal. A better deal has to go through national security concerns. So the US wants countries to have a full alignment with their view of the of the world. And that's going to be important, particularly for Europe and for other countries within EMs, but also for China, they want reciprocity. 

So, for example, agriculture is a big problem between the United States and the European Union (EU). The US doesn't see as fair practice that they have much less tariffs on agricultural product than the EU imposes on US products, and obviously they want a rebalancing. So, countries that have aggressive industrial policies, they're going to have to do something to rebalance these industrial policies in order to avoid having these unfair competitive advantages. In the absence of them putting policies through increase wage costs, then there will be other instruments like currency levels, or inflow taxes or tariffs that actually could lead to this rebalance. So again, I think the tariffs are a lever to achieve the other two objectives. 

And the other two elements are deregulation and increase in energy production in the United States to engineer higher GDP growth. And with this higher GDP growth, it becomes much easier for a thoughtful fiscal adjustment to take place. Scott Bessent has a target of 3% fiscal deficit by the end of the mandate. Most people don't believe that this is easily implementable. We agree, there's quite a lot of challenges to implement these policies. But I think that the direction of travel matters a lot here. And in 2025, most likely we're going to see some attempt of consolidating the fiscal deficits, which would be a step toward the right direction of rebalancing debt in a more holistic manner. I think that, again, after the trade agreement or after the trade war leads to some sort of grand bargain, that Scott Bessent and others have been talking about, then we can actually have a much more constructive environment for EMs. So in a way, EMs start the year in a waiting mode, and there's going to be quite a lot of noise while these trade tensions develop. But we think that we're going to have a much sounder and a much more reasonable outcome as a result of that. And it's going to be much earlier than the first Trump administration when the trade war started only in 2018 towards the end of the second year of the Trump administration. I think trade and immigration is coming straight out of the gates.

Stephen Rudman: Excellent. Thank you. So with all that said, what are the impacts to growth and inflation, both US developed markets, other developed markets, and of course EM, based on how this all plays out?

Gustavo Medeiros: One reason why we do not believe that we're going to get a very aggressive tariffs, is that if the US implements relatively large tariffs across the board and very large tariffs on China, that's going to lead to a very strong inflationary impulse into the US. And another thing is, , and any political analyst would tell you that Donald Trump, one of the reasons he won the election with such a large majority and carrying both Houses of Congress with him was that Americans were not happy about price levels under Joe Biden. You know, the purchasing power deterioration was a big, big factor. I think Trump is acutely aware of that. And also, Trump associates success with the level of stock markets. If there is a scenario where tariffs are unleashed and immigration is curbed in a very aggressive manner, and the US has mass deportation, those would be strong inflationary impulses and actually impulses that would be negative for growth as well in the US economy.

So, the very same reason why Trump won the election would actually turn against him relatively early in his administration. That's why we don't think that we're going to have a very aggressive policy in that space. A more thoughtful policy could actually deliver the rebalance that he's looking for. It could actually be good for the part of the population that he's catering for, that he says he's going to help, and could actually be good for the US economy and the rest of the world. That's why we believe in the more thoughtful approach.

But if you do get these tariffs again, that would have an inflationary, stagflationary, impact to the US and a deflationary and a negative for growth impact to the rest of the world. And that leads to a further widening of interest rates. Differential higher interest rates in the US would put pressures on US assets – in particular, US stocks that are trading at relatively expensive levels. If you look at Slide 4, growth and inflation expectations at the beginning of the year, you can see that the consensus has dropped since Trump got elected for a slightly weaker EM GDP growth, so from 4.1 we go to 3.9. EM ex-China actually is solid at 3.5, and also slightly weaker developed market (DM) GDP growth, but with US improving and DM ex-US decelerating. 

If you look at the gap between EM versus DM, we're still at around 2.5%. EM ex-China versus DM, we're actually improving at 20 basis points, so 2.1% growth differential. And if you look at different regions, Latin America and Asia are likely to slow down by 0.5% for  2024. Eastern Europe and Middle East and Africa are likely to accelerate. And within Asia, China decelerates the most, and EM ex-China actually holds on slightly better. 

We don't have huge, strong views as we had in 2024 about where consensus can be wrong at this stage simply because there is a lot of uncertainty along the way. But if there is a more thoughtful approach earlier in terms of like a grand agreement, there is some room for EM growth to surprise a little bit to the upside, particularly if during the trade war, China and Europe do accelerate their fiscal and monetary policy stimulus, that I think the political pressure within Europe can actually lead to some acceleration of policy stimulus, particularly if it comes together with pressure from Donald Trump for Europe to rebalance its economy, driving a stronger Europe. But yes, that's the picture, we have the divergence between growth, between EM and DM growth remaining in place, not accelerating anymore as we had about two, three months ago, but remaining at a slightly, at a pretty favourable level to emerging markets. And we need to see how long and how that's going to be resolved within the next couple of quarters.

Stephen Rudman: All right, excellent. Well, that leads us to what's probably most on everybody's thought when they think about what 2025 is going to bring, which is, what are EM equities and EM bonds going to do? Let's start with equities and then move on to the debt side.

Gustavo Medeiros: Very good. Thanks, Steve. In the equity space, if you look at Slide 5, we have our traditional chart that shows the Z score of the price-to-earnings ratio across the S&P, the MSCI World ex-US, which is basically DM ex-US, and then emerging markets. So the largest regions in the world. And we also have the level that we were trading just before the first trade war on the little circles and the last Z score that we have at the moment. So you can see that EM and the World ex-US was actually very similar to the levels that we were in the first trade war and very similar to the average since about 2005, which is the inception of this data. Whereas, if you look at the US stock market, we're pretty much all-time highs, trading more than two Standard Deviations above the mean since 2005. If you look at it on a multi-decade period, it's really rare that US trades at these levels of valuations. And if you look across the board, you can see that nine out of the 14 countries in emerging markets have much lower levels of valuations today than we had during the first trade war. Particularly, you know, Latin America, Brazil, Mexico, Columbia, Chile, they all traded a big discount. They all traded in line of the average or the slight premium to the mean vis-a-vis 2005. South Africa, China, South Korea, Indonesia, and Malaysia are also trading at a discount today vis-a-vis its mean at a much, much more subdued levels of valuations than before the trade war. So that's interesting. The market has anticipated quite a lot of this noise that I mentioned is coming. 

You can also see that when you look at the price action of currencies. I think that the worst point or the most aggressive part, since Donald Trump started to rise in the polls around beginning to mid-September until the effective election date, that was the most challenging period for EM assets both in absolute terms and vis-a-vis the rest of the world, and the US in particular. Since then, this divergence has been much milder. There are only three countries that are trading at relatively more expensive levels, India, Taiwan, and Thailand. And we think that there are good reasons for Taiwan to trade at more expensive levels in terms of the artificial intelligence trend boosting the semiconductor sector, the hi-tech, highly developed companies like TSMC. Butin the case of India, we think it's a market of tremendous opportunities in the long term, but it's one where you want to be mindful of the valuation and you want to be mindful of some specific company dynamics in the short term. There is quite a lot of opportunities to buy in India probably at a better level valuation during 2025. 

Now, we also do our traditional scenario analysis. If you look at the chart at the table at the bottom, you can see today EMs demonstrated around 11.8 times earnings, which is a de-rating, vis-a-vis where we were at the beginning of September of a couple of points. And if you look at earnings-per-share on a one-year forward-looking basis, we're at around 92, if you look at on a trailing basis, we're close to 85. We're likely to close 2024 at $85 per share in EM, which is an improvement vis-a-vis 2023. In our bear case, base case, and bull case, we have earnings-per-share declining to the bottom of the cycle in the bear case, improving in line with 2024 year-to-date, and what the market expects for 2025 in the base case, and in the bull case scenario going to an all-time high 119. and the price-to-earnings, we simply do what typically happens during the cycle. If there is a negative environment in a bearish economic backdrop, and earnings-per-share are declining, typically multiples increase to compensate. The markets basically anticipate that earnings-per-share will recover, and that's why the valuation multiples expand. And in our bear case, we have 13 multiples, while in the bull case, we have only a very under-demanding 11 times earnings, and we have a range of total returns of -12 to +23. That highlights something that we pointed out in our piece, which is that for EM assets, the distribution of returns are skewed towards the right side. 

There are scenarios where the price-to-earnings multiple expense, if there is a larger allocation to EM, structurally people get out of US and more into EM, for example, then we can actually have earnings-per-share improving and the price-to-earnings improving as well towards, say, 12.5, 13. That's a scenario where we have much higher total returns, you know, on the 40-50% potentially, again, which is a fat tail on the right-hand side. 

Whereas, if you look at US assets, the tail is actually skewed to the left-hand side and, if there are less thoughtful policies, I think the tail is much fatter there in the US market on the left-hand side than in EM, as you can see on the bear market. The bear case scenario has a relatively muted drop-down from here. So more upside, less downside, and we started with a lot of headwinds. That's why we have this opportunity of adding to an asset class that is already increasing, growing earnings and still trading at very attractive levels of valuations. Premium for the courageous.

Stephen Rudman: Indeed, we like that. We want to touch a little bit on EM debt. And then we'll do some Q&A after that.

Gustavo Medeiros: Yes, very briefly in Slide 6. You can see first and foremost on the left-hand side that yields overall are still very attractive. So this is basically the range of yield-to-maturity since, pretty much. It's saying since 2002 here. Disclaimer, this is actually incorrect, it is basically over the last 10 years or so. It doesn't change much if you look at the range since 2002, excluding 2008, when you had an extraordinary spike. So, you can say that even since 2002, yields would be very attractive unless you expect to see another 2008 crisis around the corner, which I think it's fair to say that it's quite unlikely to see. 

You can see that particularly in sovereign debt, but also in the investment grade space where credit spreads are very tight, the latest yield-to-maturity represented by the axis are more towards the wides than the tights. And obviously we're at much wider levels than we were in Q4 2016. And if you look at local currency bonds, we're much closer to 2016 levels and slightly closer to the medium to the average or the medium of this distribution of yields. But if you look on the right-hand side, you can see the yields in real terms. So if you consider one-year government bonds, vis-a-vis the inflation expectations for 2025, the local currency bonds is actually offering close to 3% real interest rates, which is the highest levels within the last 15 years and much higher than the developed world space, which is offering only 1%. So, in nominal terms, you have quite a lot of opportunity in off-benchmark countries that are doing structural reforms. On average, these off-benchmark countries offer 11% nominal yield. This is where we think that it'll be quite a lot of idiosyncratic opportunities and quite a lot of alpha to be made during 2025 to the extent that again we're seeing quite a lot of structural reforms. That's one of the reasons why high yield has been compressing and has been tightening. If you look at the B versus BB credit spreads or BB versus BBB credit spreads, we've seen a strong compression in debt. A good part of the reason is because there's quite a lot of countries that are migrating upwards and the market is faster to anticipate this migration. That's why the credit spread between geographical region tightens.

But we no longer think investors having an open barbell strategy of having an investment grade and a high-yield concentration in the distressed space is a no brainer. You've got to be much more selective of where you put your chips to work in the distressed space, within the high yield space and also within the investment grade space, since you have one or two countries that could be fallen angels situation during 2025, that bears monitoring. So the message is the same. We have quite good potential total returns, given on all-in yields across both asset classes. EM local starts the year on the back foot because of the trade disputes and the trade noise. But at some point, there's going to be tremendous opportunities to add exposure into the EM local part of the asset class because it's an asset class that both currencies remain undervalued but also real interest rates are very, very attractive.

Stephen Rudman: Excellent. We do have a couple of questions. I think this is a good transition because they're mostly around EM debt and the dollar. First, how do you see Trump 2.0 policies, ambitions of a weaker US dollar and high tariffs impacting emerging markets, both investment grade and high yield in the sovereign space? So EM sovereign, high yield, and investment grade.

Gustavo Medeiros: Trump’s ambitions of a weaker US dollar and higher tariffs?

Stephen Rudman: Exactly. These things obviously seem to conflict with one another. So, what is the likelihood that Trump's thoughts of "ooh, weaker dollar better" creates export opportunity, with the concept of higher tariffs, and what will that do to the dollar and inflation? I guess the last piece now would be relative to EM sovereign, both investment grade and high yield. Does that make sense?

Gustavo Medeiros: Yes, it does. I'm very happy because there is quite a lot of confusion in regard to Trump's policies, particularly because the policies are very ambiguous, and they're ambiguous by design, right? 

Trump is saying, "Oh, Japan, Europe, and China, their currency is far too weak." He says it gives them an unfair competitive advantage that needs to end. But at the same time, he's saying if the BRICS countries don't try to challenge the hegemony of the dollar, we'll slap 100% tariffs on the BRICS. And then people think that there is a contradiction here. I think that, to be clear, the sequencing I think makes sense is the threat of tariffs likely to lead to a stronger dollar at the margin. That's what we've seen already taking place since some of that repricing already took place. We've seen that on the Mexican peso. We've seen that on the renminbi. We've seen that in some currencies. There will be more pressure, and there will be more at the margin from here until we get a tariff deal. But the deal is going to actually go around rebalancing the trade. And if you want to rebalance the trade, you've got to go back to the first point that Trump makes, which is countries doing what Martin Wolf and other economists called beggar-thy-neighbour currency valuation. This started before the Bretton Woods era, where countries were trying to weaken their currency to have an unfair competitive advantage in terms of their export market. Trump wants actually these countries to strengthen their currencies. 

People talk about the Mar-a-Lago Accord, and when we wrote a piece about the Trump potential US election win in June, we talked about the Trump Power Accord, but we think the sequencing is the threat of higher tariffs leading to a stronger dollar in the short term, marginally stronger dollar in the short term, followed by a grand deal or grand bargain that will lead to a much, much weaker dollar against the surplus countries, which are Europe, Japan, and China. And obviously those are the largest countries' currencies in the world today. Therefore, we're likely to see a slightly stronger dollar at the beginning of the year and a much weaker dollar towards the end of the year, should that scenario play out, which is our base case. And that would lead to tariffs, which are also inflationary. If you do have higher inflation, what is likely to happen is after the December cut by the Federal Reserve, the market is going to price out further cuts that were priced in for 2025 and higher interest rates could actually be negative for risk sentiment. We can actually see credit spreads widening marginally from that.

So, in the beginning, this threat of tariffs is going to be negative for credit spreads, marginally again, not very aggressively. I don't expect markets to fully price in very aggressive tariffs because everybody's has been monitoring that already. But then at some point, if we do get a grand bargain, that's going to be very positive and very, very quickly. So, the challenge for active investors here is to be tactical, to be disciplined, and to have their eye on the ball, because at some point, probably at the point of maximum pain, it'll be when the peak opportunities will be for investors across the spectrum. You might get a grand deal, very quickly, which can actually mean a pretty big opportunity. This is some of the factors that we're going to be trying to monitor behind the scenes But before then, you have to keep a tactical and a disciplined approach during this challenging period. Hopefully that answers slightly more on the sequencing: tariffs first, negative environment, dollar bullish, grand deal, positive environment, then bearish for the dollar.

Stephen Rudman: Thank you. Here's an easy question which should take very little time. In Slide 6, can you confirm the EM equity returns are in dollars? 

Gustavo Medeiros: Correct. Those are in dollars.

Stephen Rudman: Yes, that's what I thought, and just wanted to confirm. Another question I want to give you the chance to add to is simply your view on the Mexican peso. Is there anything you want to add to that?

Gustavo Medeiros: I'm on the record on Bloomberg saying the day to buy the Mexican peso was likely to be on the day of the result of the US election, because if Donald Trump wins, the Mexican peso would sell off aggressively, at a level at which investors would want to be involved. This was because in the short term, it was unlikely the peso would trade weaker than that, and should Trump lose, the Mexican peso would rally, likely a longer correction that investors should be able to take advantage of. And that's how it played out. We had a sharp devaluation of the peso on the day after the election, when  Donald Trump’s victory was confirmed. And from there, the peso traded a little bit stronger, a bit weaker, but it never actually breached the highest intraday levels seen on  6 November. If it did, it did it very, very marginally and in asset terms, the Mexican peso has been doing well.

Now, I do think there are going to be headwinds for the Mexican peso, and investors want to be cautious there. If you're purely trading the currency, you don't want to be a hero and go long Mexican peso, definitely not in sizeable amounts. So it's likely to be an environment where you want to be light and marginally underweight at the right levels in the Mexican peso because at some point, there is going to be more noise when it comes to tariffs, or when it comes to other potential creative approaches to US immigration, for example. There are many things that Trump could take out of his hat. Therefore, I think there's going to be better opportunities to engage. But I think most of the negative pressure in the peso was between the Mexican election and the day of the US election. Between 60 to 80% of the negative pressure is most likely already behind us. From now, it's going to be much more marginal.

Stephen Rudman: Excellent. One last question, which again, you may have touched on this, but this is pretty specific. Is the approximate +20% drawdown in Latin American (LatAm) equities year-to-date justified or does it offer an attractive valuation to get in? What do you think?

Gustavo Medeiros: LatAm has had worse than expected fiscal numbers for the three largest countries: Brazil, Mexico and Colombia. The market got really spooked across these three places, but particularly in Brazil. The market also got spooked by the policies AMLO implemented at the end of his administration in Mexico. That is a big part of the drawdown in LatAm and obviously the Trump trade was the icing on the cake. 

So, I think LatAm is pricing in quite a lot of negative. It started the year pricing in a relatively subdued environment. And now we're pricing in a very, very negative sentiment from locals. But there are a few nuances here and there. If you look at Brazil, for example, the nominal fiscal deficit was probably at its lowest levels at around September-October, the latest numbers that got published. We're likely to see an improvement from here until the end of the year. And we're likely to see slightly better numbers in 2025, even though the fiscal adjustment announced by Fernando Diez were slightly disappointing. We're likely to see fiscal consolidation also in Mexico and Columbia for 2025. So I think that the glass, beyond half empty is a little bit exaggerated there, which leaves upside for Latin America. 

Interestingly, in Colombia, we've had quite a lot of, high net worth families buying large stakes in key companies, in key conglomerates in Mexico, and that's typically a signal that asset prices have been very, very cheap, and it's time to look through the political noise. Importantly in Chile, we have an election in Q4 2025. Traditionally, when Latin American markets have had a transition from the left to the right of the political spectrum, we see a very, very strong performance on equities in the year running up to the election. Chile also has a lot of positive elements going for it as well, including a sound fiscal adjustment. The current account deficit is the widest in LatAm, but it's nowhere near super-concerning at around 3% of the GDP. The fiscal deficit is between 1-2%, down from 7% at the peak. And  obviously, both Chile and Peru have large resources in the form of copper, for example, which is a key metal. So there's quite a lot of positive elements going on in these countries, and there are smaller Latin American countries that have been doing very well also. Uruguay, Argentina, and Paraguay are likely to remain bright spots in 2025.

Stephen Rudman: Gustavo, thank you. That is awesome. I think that addresses the questions that were already inherently answered in your story there. With that said, as always, thank you for your time, Gustavo. To all that are attending, thank you for your time today joining the webinar. If you do have any remaining questions, feel free to contact your Ashmore representative. Additionally, we will be sending up a follow-up email with both the webinar replay, but more importantly the 2025 outlook that Gustavo and team have put together, so you can see all the charts he shared today, as well as the deep description therein. 

So with that, again, thank you all, here from Ashmore, myself, and my colleagues. I want to wish everybody a great holiday season, and certainly a healthy and prosperous 2025. And again, Gus, thank you. We'll see you soon.

Gustavo Medeiros: Thank you.