Fiscal

We assess where emerging markets debt is on a strategic and cyclical basis. We find it has benefited from local central banks boosting their inflation-fighting credentials and governments improving financial stability. As a result, EM debt is behaving less like a risk-on asset, changing the role it plays in a global portfolio. We also expand our asset allocation playbook by assessing how the asset class behaves across the business cycle. While EM debt is more than a risk-on play, we suggest investors stay cautious on a cyclical horizon.

Democrats are still slightly favored for reelection as the incumbent party is presiding over a growing economy. However, Biden’s strong showing in the primary election is not lifting his popular approval yet, and that is a worrying sign. Policy uncertainty should rise sharply, which is marginally negative for the stock market.

In this BCA Special Report, we ask what policies investors should expect if Donald Trump wins the 2024 Presidential election. The answer is that a second Trump term would be much less positive for risky assets than the first. While the US will remain democratic and geopolitically preeminent no matter the outcome of the 2024 election, a second term Trump administration would likely oversee large budget deficits, continued wealth inequality, labor shortages, high import prices, and an erosion of checks and balances, possibly including at the Federal Reserve. Trade policy under a second Trump presidency represents the greatest cyclical risk to investors, and the sequencing of policies in general will be important to monitor. An early legislative priority of immigration over tax cuts, alongside the rapid imposition of new tariffs, would be the worst alignment for risky assets.

China will continue to suffer from a “triple crisis”. Though there could be a tactical bounce, cyclically we still recommend underweighting Chinese equities.