Fidelity's fixed income team have taken a bullish stance on emerging market debt, as political calm spreads and creates further opportunity.
As part of the monthly fixed income outlook, Andrea Iannelli, investment director at Fidelity International, said maintaining the view is a result of tailwinds playing out as expected.
She said: "Positive signs on the US-China trade talks and potential for further domestic stimulus has made us more positive on Chinese corporate bonds.
"As growth expectations have slowed, the US Federal Reserve has been quick to change its tune, despite a tight labour market and rising wage pressures.
"The increased likelihood of more stable US interest rates and a halt to the balance sheet unwind should put a floor on emerging market assets by allowing for easier emerging market central bank policy.
"The key is whether the Fed can engineer a 'sweet spot' economic landing at around-trend growth - not too hot, not too cold."
Ms Iannelli added that should the US dollar continue to weaken, countries such as Turkey, Mexico, Indonesia and South Africa could consider unwinding the rate hikes from last year and ease financial conditions.
She said: "If done in a responsible manner, this should be supportive for local currency bonds and not a major obstacle for emerging market currencies."
The team also favours some single-B sovereigns with support from the International Monetary Fund, including Argentina, Ukraine and Ecuador.
On the local currency side, Ms Iannelli said countries such as Mexico, Colombia, Peru, South Africa, Serbia and Indonesia all offer opportunity as they have generous real yields, a steep curve and the potential for rate cuts.
She said: "In EMFX, we like several Latin American currencies such as Argentina, Peru, Chile and Colombia. Outside of Latin America, some markets like Hungary and Malaysia remain attractive. We also have some carefully sized positions in frontier local currency markets such as Ghana, Dominican Republic and Nigeria."
Jameel Ahmad, global head of currency strategy and market research at broker FXTM, said investors are right to keep an eye on China.
He said: "Data announced early morning from the world’s second largest economy, China, perpetuated the narrative that GDP momentum is trending lower and this could fuel another round of concerns over a slowdown in the global economy.
"This means we can expect the momentum of emerging market currencies in south-east Asia to trend weaker, as they are collectively closely correlated to a reliance on Chinese demand for their goods, which should signify some softness in the likes of the Singapore Dollar, Malaysian Ringgit, Indonesian Rupiah and even the Chinese Yuan after the economic releases from mainland China."
Jenny Turton is a freelance journalist
