The narrative of "US exceptionalism" driven by equity outperformance is misleading. EM Foreign Exchange (FX) is resilient because EM GDP growth forecasts are being revised higher than in the US. EM equity indices are often poor proxies for their economies, lacking exposure to key growth drivers like AI or defense.
Despite rising US Treasury yields, inflation concerns, and geopolitical risks, emerging market sovereign credit spreads continue to compress to their tightest levels in two decades. This reflects strong risk appetite and perceived EM resilience as markets pivot from recessionary fears to a global growth narrative.
The market's discussion around Senegal's debt has definitively shifted from "if" it will restructure to "when." Bond prices in the low 50s already imply significant concessions, such as a 75% coupon reduction and a 15% principal haircut. Recent political turmoil merely accelerates and complicates this expected outcome.
Israel offers idiosyncratic investment drivers distinct from broader EM trends. Its central bank can pursue a monetary policy cycle independent of major economies, helped by currency appreciation that suppresses inflation. Israel's market also provides rare EMEA-region exposure to the global technology and AI themes.