Investor flock to emerging market assets on rate cut bets

Investors are increasingly turning to emerging markets as they bet on falling global interest rates amid ongoing volatility triggered by US President Donald Trump’s trade war, according to Bloomberg. 

The strategy focuses on local-currency bonds in developing countries where yields remain high and central banks still have room to cut rates, the report said. 

Some are also making bets through “receivers,” a type of interest-rate swap that gains when rates decline.

This trade has held up well during recent market turbulence. While US stocks saw sharp losses — with the S&P 500 Index suffering its worst two-day drop since March 2020, erasing around US$5 trillion (HK$39 trillion) in value — emerging-market local government debt posted its best weekly performance in about a month. Interest-rate swaps in countries like Brazil and Chile also recorded their biggest weekly declines since 2022.

The shift highlights how some emerging-market assets have remained relatively resilient. A benchmark for developing-nation stocks is up 1.1 percent so far this year, compared with a 14 percent drop in the S&P 500. At the same time, an index tracking emerging-market currencies rose 1.7 percent, while the US dollar weakened by 3.4 percent.

STAFF REPORTER