Emerging markets may be trading in a “sweet spot” for now amid a synchronised global expansion, but there’s a “strong likelihood” the segment will see a meltdown later this year, Nomura said.
“Just as quantitative easing (QE) was successful in pushing investors into riskier assets, we expect the unwind to have the opposite effect,” Nomura said in a note on Wednesday.
The bank added, however, that the expected meltdown likely would be “non-linear” amid a large build-up of emerging market debt and how quickly market liquidity evaporates.
Nomura said Asia ex-Japan was also enjoying a growth sweet spot.
But it added, “the market risk premium is too low for this highly indebted region. Hurdles include the end of QE, a loss of global growth momentum led by China, and U.S. trade protectionism.”
For trades, Nomura said it viewed the fair value for the dollar/yen (USD/JPY) as “towards 90.” The pair was at 107.37 at 11:12 A.M. SGT.
Its view on the Singapore dollar was balanced between bullish and bearish, citing an improving domestic and global outlook and a rising likelihood that the Monetary Authority of Singapore would tighten policy ahead.