M Global IdeaGlobal EM StrategistTread CarefullyMorgan Stanley & Co. International plc+James K LordStrategist James.Lord@morganstanley.com +44 20 7677-3254 Neville Z MandimikaStrategist Neville.Mandimika@morganstanley.com +44 20 7425-2509 Pascal N BodeStrategist Pascal.Bode@morganstanley.com +44 20 7425-3282 Morgan Stanley & Co. LLCSimon WaeverStrategist Simon.Waever@morganstanley.com +1 212 296-8101 Ioana ZamfirStrategist Ioana.Zamfir@morganstanley.com +1 212 761-4012 Emma C CerdaStrategist Emma.Cerda@morganstanley.com +1 212 761-2344 Eli P CarterStrategist Eli.Carter@morganstanley.com +1 212 761-4703 Morgan Stanley Asia Limited+Min DaiStrategist Min.Dai@morganstanley.com +852 2239-7983 Gek Teng KhooStrategist Gek.Teng.Khoo@morganstanley.com +852 3963-0303 We keep EM exposure light into important US data in the coming weeks. EM FX trades focus on relative value but with USD longs via THB, PHP and CLP. In EM sovereign credit, tight valuations still suggest reducing beta, although with some new opportunities in IG. FX & EM Strategy: Our neutral EM FX view dictates a focus on relative value, yet the tactical bias remains USD-bullish, particularly into important US data, including 4Q GDP, January NFP and core PCE. We suggest expressing this via long USD/THB, USD/PHP and USD/CLP. Meanwhile, China growth and capital market performance continue to disappoint investors. This weighs on EM sentiment but is unlikely to translate into significant EM FX weakness as the PBOC has an incentive to keep CNY stable. This week we look at fiscals, which on aggregate deteriorated in 2023, a trend we expect to persist into 2024, leaving fiscal risk premia high, especially for those countries with elections, rating risks to the downside and high supply.Sovereign Credit Strategy: The underperformance of EM IG versus US IG in recent months stands out as it suddenly leaves EM IG at the cheapest relative point since early 2022. Panama, Israel and Saudi Arabia are the main contributors, yet the underperformance is more broad-based too. All in, we think that this offers a good opportunity to add more IG bonds, especially on a total return basis given our renewed bullish UST view. Our like stances include Chile, Uruguay and now also Saudi Arabia and Romania. Hungary instead becomes a new dislike stance given valuations and greater risks around the EU elections. In general, 10-year bonds look more attractive than the long end. We add 10s30s steepeners in Mexico and Egypt and a 10s30s flattener in Turkey. Finally, in LatAm HY, we move Ecuador to a dislike stance and instead move Argentina to a like stance, also suggesting to buy ARGENT 2046 versus ECUA 2040. In Venezuela, PDVSA looks too cheap versus VENZ and we suggest switching out of VENZ 2026 into PDVSA 2026.LatAm Macro Strategy: As MXN has become the main highlight of our recent client conversations after a relatively uneven...
