More vol = more opportunities - Nov. EM/DM Leading Indicator Watch

From an asset allocation perspective, our cyclical regime models continue to prefer EM assets over DM. Our macro risk models suggest the 6-month ahead outlook remains favorable for risk assets. Given market divergences we noted in our Nov. Macro Snapshot (link), the current bout of risk-off is not completely unexpected and should ultimately be an opportunity to add risk.

Recent market volatility is creating new opportunities and reasons to take profit. We are closing our long USD vs short KRW after a very favorable move over the past 2 months. We are also very close to initiating new longs in JPY and NZD.

Summary by Country:

• Japan: Disorderly yield surge suggests JPY sell-off nearing exhaustion
• Canada: Lingering inflation + fading growth concerns => stick with 10y bond short (yield up)
• Australia: Growth & inflation holding up, still like short EUR vs long AUD
• New Zealand: Growth bottoming + NZDUSD LPPL crash exhaustion into RBNZ meeting
• Brazil: Inflation rolling over => stick with long bonds and long equities
• Mexico: Growth backdrop remains weak, MXN likely to underperform as Banxico eases
• South Korea: Growth outlook continues to improve, take profit on long USD vs short KRW
• South Africa: Energy importer + metals exporter = structural sweet spot