IMF Fall 2022 Meeting Takeaways
Investors are nervous about higher rates, but seem to be unsure. Instead of reducing duration or being selective they are tending to be index-hugging and enduring the pain of rising rates. Investors are also nervous about geopolitics, but not sure what to do, again leaning toward index-hugging. There’s no conviction.
Investors seem to be waiting for peak yields, after which they will allocate maximum long those emerging markets local currencies that hiked early and large. But for now, they’re awaiting ‘instructions’ from US treasuries. So far, too few think the answer to rising rates is to have low duration, and are looking to slowly accumulate selective risks as yields find their peaks. There seems to be support for emerging markets, especially EMFX as an eventual winner, and something to accumulate, but are hesitant of developed markets rate rises and the flight from risky assets to do anything other than consider the index. Too many are saying, “treasuries are the boss of me”.