BofA’s Hauner Expects More Emerging-Market Gains as Dollar Drops

BofA Securities projects emerging-market assets will yield returns of 'several percent' this year, driven by an anticipated weakening of the US dollar and stabilization of long-term US interest rates. David Hauner, head of global emerging markets fixed-income strategy at BofA, suggests that these factors could sustain double-digit returns for the asset class.

Analysis

BofA Securities projects that emerging-market assets are poised to deliver "several percent" returns this year, with the potential to sustain "double-digit" returns, as articulated by David Hauner, the firm's head of global emerging markets fixed-income strategy. This optimistic forecast is principally underpinned by expectations of a continued decline in the US dollar, which Hauner identifies as the "most important driver," coupled with an anticipated stabilization of US long-end interest rates. The overall market sentiment surrounding this projection is characterized as "strongly positive" (sentiment score: 0.75) with a "bullish" tone, indicating that this outlook is viewed favourably and could have a notable market impact (score: 0.6). The analysis highlights currency dynamics and US interest rate movements as pivotal factors for the performance of emerging market assets.

Key Decisions for Investors

• Investors aligning with the view of a weakening US dollar and stable US long-term interest rates may consider increasing exposure to emerging-market assets to potentially capture the forecasted returns.
• It is crucial to closely monitor movements in the US dollar and US long-end interest rates, as these are the primary drivers cited by BofA Securities and any deviation could significantly impact the validity of the bullish emerging-market outlook.
• Before making allocation changes, investors should critically assess whether BofA's core assumptions regarding the US dollar's trajectory and long-term interest rate stability are consistent with their own macroeconomic analysis and risk tolerance.