DM divergences and EM “sweet spots” - Jan. EM/DM Leading Indicator Watch

New Ideas: Long NZDJPY, Indonesian equities as potential EM outperformer
Summary: Overall VP macro regime remains neutral while EM/DM liquidity models still prefer DM. Within DM, growth outlooks are starting to diverge, while inflation pressures are moderately elevated across the board. In EM, South Africa and Indonesia are in cyclical “sweet spots” – an improving growth outlook accompanied by falling inflationary pressures.

Summary by Country:

• Japan: Elevated inflation to keep BoJ hawkish, but JPY likely to stay weak
• UK: Sticky inflation to delay BoE cuts, despite growth headwinds
• Canada: Growth stabilizing amid rate cuts, still like short CORRA futures
• New Zealand: Fade peak pessimism via long NZDJPY as growth shows signs of improving
• Brazil: Inflation fears need to subside for foreign flows to return to equities
• Mexico: Resilient growth “pending” tariff negotiations, MXN still looks cheap
• South Africa: Stable growth & inflation outlook => bullish ZAR
• Indonesia: Cyclical tailwinds & cheap equities => outperformance candidate

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