Did you know that political stability can significantly impact foreign investment in emerging markets?

Investors often seek stable environments to minimize risks, and that includes us.

In this edition of our newsletter, we’ll look at the following:

• Bond Investors Keeping Their Fingers Crossed: First, the bond market is anticipating rate cuts as the yield on the 10-year treasury bond drops 🤞

• Elections In India, Mexico, And South Africa Made Big Waves. What’s The Take-Away? Next, recent elections in these emerging markets have caused significant financial market volatility 🤔

• Some Central Banks Have Commenced Their Easing Cycles: Finally, central banks around the world, including those in Europe, Canada, and several emerging markets, have started to cut rates 🏛️

Stay tuned as we unpack these developments and what they mean for your investment strategies. Let’s go!

Bond Investors Keeping Their Fingers Crossed 🤞

The bond market is betting on rate cuts coming fairly soon, even as stock investors are fretting about how many times the Federal Reserve will actually lower rates this year.

The yield on the 10-year treasury bond has tumbled from a 2024 high of above 4.7% in late April to around 4.46% currently.

The hope is that decelerating inflation will allow the Fed to start cutting sooner rather than later ✂️

The central bank talks a lot about 2% being its desired year-over-year inflation target, but few think that the Fed will wait to start cutting until its preferred inflation metric, the core personal consumption expenditures price index that excludes food and energy costs, hits a 2% annualized level.

Bonds are still badly lagging behind the broader stock market so far this year and even in the past month.

The iShares Core U.S. Aggregate Bond ETF is down 2% year to date.

Meanwhile, the S&P 500 is up more than 10% this year despite volatile trading in recent weeks 📈

Perhaps bond investors will finally get some love.

Elections In India, Mexico, And South Africa Made Big Waves. What’s The Take-Away? 🤔

In Emerging Markets, election stakes are incredibly high, and when voting outcomes don’t go according to plan, extreme financial market volatility erupts.

In India, Prime Minister Modi was widely expected to win a sweeping victory with his political party maintaining a sizable congressional majority.

Modi did win, but his victory was narrow and he must now rely on political alliances with opposition parties to continue his business friendly economic policies 📝

India’s markets dropped sharply on the news.

In South Africa, the ruling ANC party has done a horrendous job of managing the domestic economy, but ever since its deceased leader, Nelson Mandela, led the country out of Apartheid, it has enjoyed a degree of legitimacy that has enabled it to remain in power despite its dismal track record in office.

Finally, its bad performance has caught up with it, and the ANC only managed to capture 40% of the vote, so it will be forced to enter into a coalition government 🤝

South Africa’s financial markets are on edge as investors wait to see who joins the ANC in the governing coalition.

In Mexico, the newly elected Claudia Sheinbaum is the handpicked successor of the outgoing left wing, populist, anti-business president, and their party won an overwhelming victory in congress, which means checks on presidential power will probably be non-existent ❌

The stock market sold off hard on the news.

We have a lot to feel down about when we look at our political climate in the United States, but at least we have proof that the economy and financial markets have performed well under both President Trump and President Biden.

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Some Central Banks Have Commenced Their Easing Cycles 🏛️

The ECB cut rates last week, just a day after the Canadian Central Bank cut rates.

So far this year, the following Central Banks have also reduced rates:

Brazil, Mexico, Chile, Switzerland, and Sweden.

The Bank of England is likely to cut rates on June 20.

So far, the Fed is showing no signs of budging, but the global economy is synchronous.

The likelihood that the Fed will see the same economic trends as these other central banks is high, which means a rate cut by the Fed is a good bet before year-end 📅

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