EM Strategy Update: Reducing Risk as AI Concerns Cloud the Near-Term Outlook

The post-election sell-off in AI-related stocks, alongside stronger US payrolls, has heightened uncertainty around the US business cycle, AI capex and leveraged positioning; EM spillovers remain limited so far. With uncertainty likely to persist in the near term, we are tactically narrowing the portfolio to fewer, higher-conviction trades. EM Local Markets: take profits on short-end receivers in Israel and Mexico, and exit payers in Taiwan; initiate fresh longs in Asian energy importers (INR and THB against SGD). We formally move to MW FX (from OW) in the GBI-EM Model Portfolio, and stay MW rates. EM sovereign credit: spreads could widen over the near term on AI-driven equity volatility, but resilient US growth and less-stretched positioning should keep any sell-off contained; stay MW, hold current country exposures including OW Argentina, and look to add lower-rated credits on cheapening valuations. EM corporate credit: remain MW expecting CEMBI spreads to hover around 200bp, balancin