In our recent roadshow we encountered rising fears over inflation and bond yields, more nuanced prospects for politics and reform in Latin America and, for markets, a whole lot of nothing out of the China-US summit.
Investors we visited in the UK and Europe stroke a more cautious tone for global markets and risk, marking a shift from the generalized optimism prevalent since the late-March bullish inflection. Three subjects caught our eye, starting with renewed focus on inflation risks rather than on growth. Second, we found eroding conviction about Latin America’s rightward political change1. Last, we caught some degree of disappointment at the China-US summit yielding no positive catalyst. Below are more details on these three observations:
A trickier inflation-growth tradeoff
Concerns over risks of sticky inflation came up in every conversation, not surprisingly after the recent jump in global long-term yields which in some cases topped their 2022 highs2. While there is widespread recognition that risks are likely to mount the longer the Strait of Hurmuz stays closed, the hawkish repricing for policy rates has gone a long way already3. For example, we heard a lot of pushback against market pricing for a rate hike in early 2027 in the US.
Turning to emerging markets, for the most part investors saw a high bar for rate hikes outside a handful of cases, mostly in Asian countries where the negative terms-of-trade shock is leading to currency weakness (such as Indonesia4). In Latin America, where the starting point for nominal and real rates is higher, the talk was more about the energy shock acting as a constraint on further easing rather than forcing central banks to tighten. That means exposure to local rates in the region remains compelling, with gains likely to come mostly from carry and not from currency strength or tighter spreads.
For stocks, earnings optimism – above all from the US and, in EM, centered on tech and materials – was moderated by tactical caution from rising cost pressures and interest rates5. While the bias remained bullish due to earnings momentum and less demanding multiples, the path forward is likely to be trickier. The reason is that resilient growth is compounding energy-linked inflation concerns – which is why, like in the 2022 episode, stocks and bonds are trading in tandem, making stocks more responsive to changes in yields6 (see Figure 1).
One takeaway from both stock and bond investors was a greater emphasis on differentiation, whether along relative beneficiaries of terms of trade, the AI buildup or companies deriving operational efficiencies from AI. While portfolios exposed to these themes have done well so far this year, they still saw room for additional outperformance.
Conservative tide or else?
The expectation of a rightward political shift is a long-standing bullish argument in favor of exposure to Latin America, along with leverage to commodities and high real rates. After a series of victories by the right (Argentina, Chile7) boosted optimism about more business-friendly policies, the path forward looks more uncertain – in part reflecting markets’ underestimating incumbents’ willingness to use aggressive fiscal moves to sway voters (like Colombia’s 23% minimum wage hike8).
Figure 1: Global stocks and bonds are moving in tandem (correlation of bond and stock returns, 1-month rolling, 3-day moving average)
Source: Bloomberg, MSCI. TRG calculations Data as of May 20, 2026*
Incoming polls suggest Peru may join the rightward shift9. The center-right candidate’s party has enough senate seats to block any impeachment effort, a plus for governability. Colombia’s, where fiscal fragilities persist, faces a highly uncertain election, irrespective of which of the two main opposition candidates earns a spot in the June 21 runoff10. Brazil’s race is also shaping out to be a contested one, with poll results and corruption scandals already generating a fair amount of volatility more than four months before the vote11. The electoral uncertainty makes positioning more challenging; in general, interest rate trades in Brazil and Colombia seem to offer better risk reward, whereas currency trades and stocks – which held up relatively well during the risk-off phase in February – seemed more symmetric.
China-US: more talks, little else
The China-US summit failed to become a tradable event. In fact, divergent readouts from both sides suggest little tangible progress on key areas such as trade, cross-border investment, Iran or Taiwan12. Investors thought that the main result was that the bilateral relationship stays stable for now – meaning status quo – with plans meet again raising the hurdle for escalation.
The summit leaves China relaying on its tech-and-export centric growth model, without urgency to rebalance. In turn, in some talks we heard that this “China shock 2.0” will become tradable at some point by narrowing the space for other countries to industrialize, with negative implications for growth and stability.
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IMPORTANT INFORMATION – REFERENCES
1 Americas Quarterly. (2025, May 13). Latin America’s Rightward Shift.
2 Bloomberg. (2026, May 18). Bond Rout Deepens as Rising Oil Prices Stoke Inflation Fears.
3 J.P.Morgan Private Bank. (2026, March 27). The Global Rates Repricing: Will Central Banks Actually Hike?
4 Wall Street Journal. (2026, May 20). Bank Indonesia Delivers First Rate Hike in Years as Rupiah Flounders, Risks Rise.
5 MarketWatch. (2026, May 5). This is Why Stocks Keep Rallying, According to Morgan Stanley.
6 Russell Investments Research. (2025, June 16). They Move in Mysterious Ways – Stocks vs. Bonds.
7 BBC. (2025, October 27). Javier Milei and his “chainsaw” austerity win big and Americas Quarterly. (2025, December 15). What Kast’s Victory Means for Chile.
8 FitchRatings. (2025, January 8). Colombia’s Minimum Wage Hike Adds to Macroeconomic Pressures.
9 Reuters. (2025, May 20). Right wing Fujimori holds narrow lead over Sanchez in Peru election poll.
10 Americas Quarterly. (2026, May 15). Colombia’s 2026 Presidential Candidates: Cepeda, de la Espriella, and Valencia.
11 The Economist. (2026, May 14). A bombshell leak threatens Flavio Bolsonaro’s election bid.
12 Semafor. (2026, May 14). Opposing US-China readouts expose diplomatic fault lines.
* Rolling correlation between MSCI ACWI, Mid & Large Cap, Total Return in USD and the Bloomberg Global Aggregate Government Index, Total Return in USD
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