PIMCO's Pramol Dhawan on why emerging markets are outperforming

Summary

PIMCO's Pramol Dhawan argues the emerging markets rally is still in its early innings and is driven by durable fundamentals, not a commodity or China-led boom. He points to improving EM credit ratings, under-allocation by global investors, cheap EM equity valuations, and high real yields in EM bonds. He favors EM assets broadly and specifically likes Latin America fixed income.

• Guest says EM rally is early in a durable multiyear cycle.
• EM credit ratings are improving with a record upgrade-to-downgrade ratio.
• EM assets are under-owned as US assets dominate global portfolios.
• EM equities trade at about a 40% discount to US equities.
• EM bonds offer 8-9% real yields in Brazil and Colombia.
• Guest favors Latin America fixed income for high real yields and lower left-tail risk.
• Host frames discussion around record-high EM ETF levels and dollar debasement.
• Guest expects EM assets to outperform as investors diversify globally.