Morgan Stanley’s Caron Says EM Is Top Trade ‘Without a Doubt’

(Bloomberg) -- When it comes to high conviction calls, Jim Caron says his is “emerging markets -- without a doubt.”

Developing-nation central banks have a prime opportunity to lower rates without threatening their currencies or inflation, according to the New York-based money manager at Morgan Stanley Investment Management. The Federal Reserve will probably cut interest rates by 50 basis points at the end of July, giving a further boost to risky assets, he told Bloomberg TV.

While emerging-market dollar bonds have been a winning trade to start the year, it’s time to allocate more to local currency notes, according to Caron. He singled out Brazil, where President Jair Bolsonaro’s signature pension overhaul is progressing through Congress and the central bank appears set to lower borrowing costs.

“That’s a market that has high demand, especially from the pension fund community, for bonds,” Caron said. “We like the local bonds and even taking a little bit of the FX risk.”

--With assistance from Jonathan Ferro.

To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net

To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, Philip Sanders, Alec D.B. McCabe

©2019 Bloomberg L.P.