Emerging Markets
Mexico’s election and the US election pose short-term and potentially medium-term risks to Mexican financial assets. But unless the ruling party wins a double supermajority, we remain structurally overweight Mexico relative to global stocks excluding the United States.
Mainland residents’ investments in gold, other metals, and Hong Kong-traded stocks are a form of capital outflow. Chinese authorities will counter any excessive capital flight with stricter administrative controls. Thus, markets benefiting from these flows will likely be hurt.
Investors should prepare for economic data to weaken even as policy uncertainty and geopolitical risk skyrocket ahead of the US election.
Wild hopes for US rate cuts got shattered, exactly as we predicted. But given the different incentives that the Fed and ECB now face, the relative pricing between the Fed and the ECB could widen further in the coming months. We discuss the implications for rates, the dollar, and the relative positioning in US versus European equities.
Central banks are in a dilemma whether to prioritize supporting growth or bringing inflation back to target. This is unlikely to end well. Investors should be defensively positioned.
AI, EVs, and reshoring will lead to a massive surge in demand for electricity. Carbon-free, cheap, baseload nuclear energy stands to greatly benefit from these megatrends going forward.