Real bad lookin’ ?

The emerging market sell-off in the last few weeks raises a number of questions that are difficult to answer. Is there reason to fear that the correction will continue and contaminate USD assets, which have been spared so far? Is it already time to play EM trade value? We do not believe in the gloomy scenario, given the still positive macroeconomic situation, but we remain cautious at this stage. We continue to believe that in the short term, USD assets are still most likely to benefit from the numerous risks that will continue to affect the markets (emerging risks, Italy, trade war, Chinese slowdown, pace of the Fed’s monetary tightening), at least as long as the macroeconomic and microeconomic news flows remain positive. In the medium term, the US macroeconomic slowdown will probably start materialising and the scale of this slowdown will in our opinion determine emerging countries’ ability to rebound. We maintain our slight overweighting in equities vs credit and bonds, while remaining tactically overweighted US and underweighted EM. We remain short duration and defensive on peripheral spreads. We are leaving our strategic views unchanged. .