A New Way to Trade Emerging Markets

Emerging markets' strong performance, driven by substantial inflows and robust fundamentals, is the central topic. Despite China's lagging performance due to slow earnings growth and weak domestic demand, other regions like Korea, Taiwan, and Brazil are thriving. Stratford Dennis, head of emerging markets equities trading at Goldman Sachs, notes that Brazil benefits from anticipated interest rate cuts, exposure to the commodity cycle, and potential election upside. A weaker dollar provides a tailwind for emerging markets, particularly benefiting commodity-focused economies. While remaining bullish on emerging markets ex-China, Dennis suggests using call spreads and call ratios to manage risk, given the flattening skew in implied volatility. The upcoming Brazil election and the broader market's digestion of the AI theme are identified as key catalysts to watch.