The bullish case for emerging market local debt.

I agree with hedge fund manager Paul Tudor Jones that the Dollar Index has at least another 10% downside risk and am thus constantly on the hunt for EM equities/debt Xanadus. Hence Sri Lanka.

The flip side of the 12% fall in the US Dollar index from 110 in January to 97 now has been the desperate quest to search for yield and capital gains in the emerging markets. My top sovereign picks last year were two countries I have studied all my life for the linkage between an interventionist military with a penchant for serial coup d'etat, dependance on an IMF umbilical cord and charismatic/populist local dynasties.

In Argentina, politics was dominated by Juan Perón, his wife Evita Duarte and his Peronist heirs in BA's Casa Rosada, notably Néstor and Cristina Fernández. While the repressive military regimes of Generals Videla, Viola and Galtieri, ended only with the surrender at Port Stanley in the Falklands War.

In Pakistan, Peronism's analog was ZA Bhutto's PPP and our Evita was his charismatic "daughter of destiny" Benazir, the murdered princes of the PPP. Pakistan equities was an investment fairytale in 2024, up a stellar 87% in USD even though no libertarian like Javier Milei emerged to challenge the neo-feudal social status quo.

Argentina's country tracker in New York (symbol ARGT) was 33 in early 2023 and is 83 now. I often feel Stanford's Francis Fukuyama and Harvard's Samuel Huntington gave me more valuable insights on my two fave EM than any research report from Wall Street or the IMF.

The winner asset class in EM is local debt, up 12.4% in the first 6-months of 2025 while EM dollar bonds are up only 5%. As I believe the 10-year US Treasury note is headed to 5.25% since duration is leprosy for the bond vigilantes as long as Tariff Man lives in the White House, I tiptoe in the fixed income constellation as if it was a minefield.

I agree with hedge fund manager Paul Tudor Jones that the Dollar Index has at least another 10% downside risk and am thus constantly on the hunt for EM equities/debt Xanadus. Hence Sri Lanka.

If the July tariffs push the US economy into recession, Trump will replace Powell with a yes man or woman Fed chair with the mandate to slash the policy rate down to 1%. In this scenario, EM local currency debt will be nirvana.

It is no coincidence that Mexican peso bonds (Bonos) are up 21% YTD. While Brazilian real notes are up 29% in greenbacks now that the SELIC rate has peaked at 15%. In EMEA, African local debt and Turkish lira bonds are my fave bets for outperformance.

The most overvalued equities on the planet? The AI and software bubbly-bubbly mutant puppies. CrowdStrike, Datadog, Adobe, Snowflake, Palantir and the private market AI colossi are all set to be gutted by 40-60% in Q3 and Q4.