A reversal in global inflation trends is pushing investors to look toward emerging market bonds for better returns, and many — including Ninety One and Morgan Stanley Investment Management — see plenty of road ahead for the rally to continue, Bloomberg reports.

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For the first time in 35 years — bar a small Covid-era blip — prices grew slower in emerging nations than their developed counterparts for two straight quarters, according to indexes tracked by the business news service’s mighty terminal. During 3Q, inflation in EMs averaged 2.5%, while developed nations saw prices rise at an average of 3.3%

Lower EM inflation has cranked up forecasts of interest rate cuts, with the list of emerging nations deciding to begin cutting rates growing and their central banks cutting at a faster speed than the US. But there’s still plenty of wiggle room, according to Ninety One Emerging Market Sovereign and FX Co-Head Grant Webster, who estimates that real policy rates in EMs are their highest in 20+ years.

In turn, this has helped push the average returns on EM local bonds in some countries like Egypt to over 20%. The average across all EMs comes out at around 7%, which is a decent peg above US Treasuries for the year so far. Good news for EM local bonds is also good news for EM currencies, with many strengthening against the greenback following investor appetite for their debt.

EM disinflation outpacing developed nations is also helping increase interest in assets outside of Wall Street and Europe. The difference in risk between equities from EMs and developed countries is narrowing, and the “emerging world looks relatively less risky than DM for the first time in a long time,” Allspring Global Investments Senior Portfolio Manager Derrick Irwin told the outlet.

MARKETS THIS MORNING-

Asian markets are mostly in the green this morning as investors react to the US House passing a funding bill that will end the government shutdown. Japan’s Nikkei is leading gains, up 0.3%, with the Shanghai Composite and Kopsi trailing behind. The Hang Seng is in the red, down 0.5%.

EGX30

40,229

-0.1% (YTD: +35.3%)

USD (CBE)

Buy 47.16

Sell 47.29

USD (CIB)

Buy 47.19

Sell 47.29

Interest rates (CBE)

21.00% deposit

22.00% lending

Tadawul

11,255

-0.1% (YTD: -6.5%)

ADX

9,994

-0.4% (YTD: +6.1%)

DFM

6,042

-0.5% (YTD: +17.1%)

S&P 500

6,851

+0.1% (YTD: +16.5%)

FTSE 100

9,911

+0.1% (YTD: +21.3%)

Euro Stoxx 50

5,787

+1.1% (YTD: +18.2%)

Brent crude

USD 62.71

-3.8%

Natural gas (Nymex)

USD 4.54

0.0%

Gold

USD 4,205

-0.2%

BTC

USD 101,605

-1.2% (YTD: +8.7%)

S&P Egypt Sovereign Bond Index

961.57

0.0% (YTD: +23.7%)

S&P MENA Bond & Sukuk

151.90

+0.1% (YTD: +8.5%)

VIX (Volatility Index)

17.51

+1.3% (YTD: +0.8%)

THE CLOSING BELL-

The EGX30 fell 0.1% at yesterday’s close on turnover of EGP 6.0 bn (24.6% above the 90-day average). Local investors were the sole net sellers. The index is up 35.3% YTD.

In the green: Misr Cement (+17.4%), Arabian Cement (+13.4%), and Palm Hills Developments (+3.3%).

In the red: Eastern Company (-3.5%), EFG Holding (-1.8%), and Telecom Egypt (-1.5%).

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