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China has surprised, mood shifting in EM’s - BAML

FXStreet (Guatemala) - Analysts at Bank of America Merrill Lynch explained that the mood in EM has shifted.

Key Quotes

"USD momentum is increasing and economic activity in China has surprised on the downside. The August stabilization in external debt, local debt and equities has given way to losses across all three asset classes."

"Equities, and local and external debt have lost 4.4%, 3.0%, and 1.5%, respectively, so far in September. This confirms our analysis, suggesting EXD would outperform in a UST selloff environment. Spot FX has depreciated by 2.1% on average, which has exacerbated negative LDM returns."

"Our GEMs FI & FX Sentiment Survey shows investors expect equities to outperform in the following three months despite the recent bout of weakness. By contrast, most continue to shy away from taking FX risk as the Fed moves slowly toward rate hikes. Investors remain cautious, with long-only clients increasing cash levels and 68% of hedge funds reporting VAR at low or very low levels."

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