Trump’s Return Forces JPMorgan to Pull a U-Turn on EM Local Debt

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(Bloomberg) — It took just two months — and one US election — for JPMorgan Chase & Co. to make a complete turnaround on its call for emerging-market, local-currency bonds.

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The Wall Street bank cut its recommendation on the asset class to underweight from marketweight on Tuesday, according to strategists including Jonny Goulden and Saad Siddiqui. They had been recommending an overweight stance until early October.

Factoring into their decision are the policies of President-elect Donald Trump. His agenda is poised to hit emerging economies, forcing growth to slow and reducing the window for policymakers to cut interest rates. Strategists had already turned neutral after the big surprise in US payrolls last month, which prompted traders to reassess the path for interest-rate cuts by the Federal Reserve.

“2025 looks to be a challenging year for EM fixed income,” they wrote. “The macro impact of higher US growth, lower rest-of-world growth, as well as higher inflation and fewer rate cuts” isn’t supportive.

The changing outlook underscores how global investors have soured on an asset class that was being touted by some as a “once-in-a-generation” opportunity at the start of the year. An index of EM local bonds has handed a 3.8% loss so far this quarter, putting it on pace for its biggest quarterly drop since 2022, according to data compiled by Bloomberg.

On Tuesday, Trump pledged to impose additional 10% tariffs on goods from China and 25% tariffs on all products from Mexico and Canada. On top of the shifting global backdrop, fiscal risks have been on the rise in places such as Brazil, Colombia and Mexico.

“There has been a broad-based deterioration of government sector deficits and balance sheets,” strategists said. “Public finances rather than current accounts are the main Achilles’ heel for EM local markets.”

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