Last year, more than 90% of central banks around the world raised rates to combat inflation – but the pace of the tightening cycles has differed. According to State Street Multi Asset Strategist Ben Luk, many emerging markets are now in disinflationary environments, presenting opportunities in areas such as Latin America where valuations remain attractive. He shared the bull case for local currency sovereign debt on Bloomberg Daybreak: Asia.

We have seen the rate rise being much earlier for the EM central banks. And that's obviously due to the fact that they're always worried about capital outflows when it actually comes to, uh a dollar liquidity environment that is much tighter and what we see right now, seen  at least from our data,  which we actually track online daily inflation across many parts of DM and  EM.  We clearly see that uh most of the EM markets are now in a disinflationary environment. And to a certain extent, in particular,  what we're seeing is in the left-hand space where uh the likes of Chile, Brazil, Mexico are all seeing actually their,  their overall monthly inflation much lower than long term trends,  much lower than seasonal averages.  And that's really where we actually see most of the central banks being the most active. 

Um, in particular,  what we actually prefer would be the local currency sovereign space that remains to be an area that we still like because valuation is still attractive, and positioning is still very light.  And more importantly,  I think we can also get a little bit of the currency exposure as well on a hedged basis.  But I think for investors that are a little bit more cautious in terms of,  the dollar um um trend over the next couple of months,  then they can actually consider the, the dollar-denominated bond space. But I think both spaces are quite attractive given the low positioning and the attractive valuations that we're seeing in those markets.

So in terms of which emerging markets you like best, is it Asia? Is it uh you know, where do you, where do you pick and choose? 

Yeah,  I think, in particular right now it's still going to be the traditional high Yeller.  Uh, LATAM remains the most preferred space for us.  Um, The likes of Brazil and Mexico are the ones that we actually value the most right now.  In Asia.  It's a little bit more of a different story because aggregate rates are actually not too high in Asia,  even though they have started um quite an aggressive cycle last year.  But in terms of total rates,  there's still not that much they can cut off in comparing to what we see in Latin or even parts of emerging Europe such as Hungary is another area that we actually see as a potential favorite as well. I think in the Asia space, most of the interest would remain in places like Indonesia and Malaysia. But I think given how the overall central  bank has actually remained hesitant in terms of actually uh allowing for more uh currency uh appreciation overall in the last couple of months, it remains to be a less attractive opportunity.