UBS’ strongest views across the 20 biggest EM economies

In this note we synthesise UBS's macro, FX, equity, rates and credit strategy views onthe 20 largest EM economies. We outline the core themes per economy, highlight ourpreferred trades, and identify the key risks and dates to monitor. See page 3 for asummary of our latest trade recommendations.

FX: EM unlikely to keep pace with the EUR; favour cyclicals over commoditiesDespite the retracement in the broad USD and US yields this month, EM currencies areunderperforming the EUR. This extends a theme of flat trade-weighted performancesince early December. The coming 1-3 months may remain difficult, as 1) EM-DMgrowth differentials shrink notably in Q2-Q4 (we estimate these differentials have a 5xhigher elasticity than outright EM growth in determining net capital flows to EM); 2)China’s credit impulse should reach -3-4%/GDP by July/August, a level that in 2014and 2018 saw the rest of EM begin to struggle; 3) EM credit risk premia screensexcessively tight; 4) EM y/y export growth likely tops out later this quarter as US/Chinaspending increasingly pivots towards services and price deflator base effects peak and5) May seasonality is typically weak. We prefer a selective approach: long cyclicals (CZK,SGD, KRW) & downside hedges in EM commodity currencies (COP, BRL, IDR, ZAR).