Key topics  The Russia/Ukraine war dominates the near-term outlook with a global impact, meaning a re-think of the drivers of EM assets.

 Our EM recommendations are pared back, at just a small UW in EM FX, and MW in EM Local Bonds and EM Sovereigns & Corporates.

Macro developments  Russia’s invasion of Ukraine will slow growth and raise inflation across EM.

The main channel of impact is via the price and supply of commodities produced by Russia/Ukraine.

 The rise in commodity prices provides support to growth and external balances of EM commodity exporters, but could weigh on manufacturing exporters.

 The combination of higher inflation and weaker growth is likely to keep EM policy normalization plans on track for now.

Top trading themes  EM local markets - FX: Small UW overall via EMEA EM and Asia, with USD strength set to continue. We hold a mix of OWs in CLP, EGP, IDR and PEN against UWs in HUF, MXN, PHP and TRY.

 EM local markets - Rates: MW overall; EM rates implications from the Russia/Ukraine war to be differentiated. Hold low yielding UWs in reduced size (EM Asia, select CEE), and bullish views in China, Israel and Singapore. In high yielders, UWs/payers are largely in Latam; scope for outperformance elsewhere (Indonesia, Zambia, South Africa and Brazil flatteners).

 EM sovereigns: We reduced our EMBIGD exposure, moving back to MW, with a negative feedback loop due to redemptions justifying some risk reduction.

Add IG risk by moving OW Indonesia, and stay positioned in names with benefit from higher commodity prices.

 EM corporates: We lowered our view on EM corporates to MW given the elevated uncertainty from defaults by Russian issuers and potential repercussions on the rest of EM corporates. Favorable supply technicals and lower positioning versus the prior episode Russia-Ukraine war should limit the contagion.