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Summary of Morgan Stanley Global EM Strategy Research (May 6, 2025)

• EM Fixed Income Flows: Flows returned to EM local market funds with USD softness supporting EM local currency assets and generating ~8.5% YTD total returns vs 1.6% for hard currency. A weaker USD is expected to sustain this trend, leading to EM local outperforming both flows and returns.

• EM FX Dynamics: Taiwan’s TWD experienced a ~6.6% appreciation recently, driven by exporters selling USD. Morgan Stanley remains neutral on TWD due to sustained USD softness but cautions high valuations and risks from semiconductor tariffs.

• IMF Spring Meetings: The IMF downgraded global growth projections amid fiscal challenges and trade uncertainty. EM deficits are projected to rise, particularly for oil exporters. Fiscal consolidation remains a key driver for cross-asset opportunities.

• Country-specific Views:

  • Positive: Argentina, Nigeria, Senegal, Zambia; Countries expected to benefit from reforms and fiscal improvements.
  • Caution Needed: Brazil (high fiscal risks), Chile (pension reform), Turkey (domestic uncertainties), Colombia (FCL suspension risks).

• **Currency & Credit **:

  • TWD Neutral: Risk/reward unattractive post-rally.
  • EM Sovereign: Opportunities in select countries like Turkey and Mexico with specific catalysts.
  • Italy: Curve remains rich amid fiscal and governance concerns.

• Fixed Income: Strategies focus on spread tightening (e.g., trim protection in IG) and tactical positioning in HY sectors influenced by fiscal developments.