Where “push” and “pull” align - Jan. EM/DM Leading Indicator Watch

Cyclical macro tailwinds are strong, and our Macro Risk Indicator remains in “risk on” territory. Ample liquidity conditions still favor EM assets over DM assets, and we see opportunities in ex-US assets that go beyond the “sell America” narrative and are attractive on their own merits. 

This month, we are taking profit on our short Canadian 10y bonds trade and adding a UK SONIA trade to benefit from more cuts being priced in beyond September 2026. We retain long Brazil equities & bonds; long Indonesian equities & long IDR vs short USD; long NZD vs short EUR; and long KRW vs short USD.

Summary by Country:

• UK: Stagflationary again => more cuts later, not priced into SONIA curve
• Japan: “Impossible trinity” back in play => yen weaker before it gets stronger
• France: Stable LEIs, equities are outperformance candidate within DM
• Canada: Take profit on short 10y bond trade as recession risks priced out 
• Brazil: Disinflation + signs of growth recovery => stay bullish 
• Mexico: Growth headwinds persist, MXN poised for weakness ahead of USMCA
• Indonesia: Political risks vs improving macro set up
• South Korea: Rising growth and inflation to prompt hawkish BoK => long KRW vs short USD