It is perfectly logical that the summer rally in emerging market debt was aborted the moment Powell spoke at Jackson Hole and risk assets plummeted on the expectations of ‘higher for longer’ interest rates and QT, which means the global money pump now goes into reverse. Apart from the predictable horror stories like Lebanon, Pakistan, Sri Lanka, Zambia and Egypt, even the JP Morgan tracker for this asset class (symbol EMB) has given back almost 5% of the 7% bull run it had between early July and the Jackson Hole bombshell. EM debt once again proves to me that markets go up like an escalator, but plunge like a demented elevator.

There are three reasons why I think it is insane to allocate capital to emerging markets at this point in time. One, I expect draconian monetary tightening once the soaring rents in the US are factored into the CPI data, since rents are 30% of the CPI index. Two, 20% rise in King Dollar since March 2021 is the kiss of death for dozens of emerging markets where deflation and cross asset contagion is imported via the current account deficit. Three, the Chinese economic supertanker has hit its property iceberg and the PRC is having its own Lehman moment, only a 100 times bigger in scale.