Morgan Stanley is pessimistic about some emerging market debts, and it's unlikely that the Federal Reserve's interest rate cut will stimulate capital inflows
Morgan Stanley has turned cautious on some emerging market sovereign debt, believing that a Federal Reserve rate cut is unlikely to stimulate a large influx of funds into bond funds. Strategists such as Simon Waever suggest investors take a short-term bearish view on this asset class, increase the cash level in their portfolios, focus on investment-grade bonds rather than riskier ones, or sell off emerging market credit default swap indices. According to a report published on Monday, the bank has removed Nigerian, Argentine and Moroccan bonds from its preferred basket and included "cheaper" Mexican and Romanian bonds. It predicts that some are already feeling the impact of U.S. interest rate markets digesting expectations for an economic soft landing. "A further decline in U.S. Treasury yields could be detrimental to risk appetite," they said, "After the first rate cut, it takes up to 12 months for money to shift from money market funds towards risky assets."
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