According to DoubleLine’s Bill Campbell, a structural convergence between advanced and developing economies is forging significant opportunities in emerging markets, despite escalating tensions in the Middle East unsettling global investors. Campbell, who oversees the global sovereign debt team at Jeffrey Gundlach’s firm, suggests developing-world markets may be on the cusp of a virtuous feedback loop if the US dollar resumes its decline and central banks continue cutting rates. DoubleLine is an investment firm providing services in fixed income, equity, and alternative investments. They manage assets for a diverse range of clients, including pension funds, insurance companies, and sovereign wealth funds.
In a recent note, Campbell stated that emerging market local fixed income presents several sources of value, which should offer welcome relief to global investors facing stretched valuations in developed market financial assets. This resilience is being tested this week as the US dollar surged alongside oil prices, spurred by escalating conflict in the Middle East following US-Israeli attacks on Iran over the weekend.
The resulting risk aversion sent currencies from South Korea to Chile plummeting, causing benchmark gauges of developing-world FX and stocks to post their worst day in years. However, Campbell believes these developments are more likely to influence near-term price actions rather than alter longer-term structural themes.
DoubleLine’s strategies have minimal direct exposure to the Middle East, and the firm has structured its portfolios to be slightly less sensitive to interest-rate changes than the benchmark. This approach follows Campbell’s previous warning about a brewing collision in some developed economies, where rising fiscal costs, weak growth prospects, and mounting social pressures threaten to create a vicious loop.
