EM Special Publication: EM local markets vs. externals: how much is priced in? June update

Research evidence excerpt

EM Special Publication: EM local markets vs. externals: how much is priced in? June update

Deutsche Bank

Research

Emerging Europe Emerging Markets Date

10 June 2026

EM Special

Publication

EM local markets vs. externals: how

much is priced in? June update

Christian Wietoska

We provide our monthly update on what external variables tell us about EM fixed

Strategist

income (EMFI) performance. In this report, we examine: a) dislocations in global +44-20-754-52424

asset classes (enhanced model), b) explanatory power estimates of EMFI vs.

externals in aggregates and individually, c) beta-analysis (newly added, d) Sameer Goel

Macro Strategist

projections of what DB's forecasts imply for EMFI returns, e) a ranking for attractive

+65-642-36973

RV trades (based on the dislocations vs externals), ) the latest results of our PCA

framework. Ankit Jain

Research Associate

This month's highlights:

n Our enhanced asset class Principal Component Analysis (PCA), now

encompassing 18 global assets, reveals a notable increase in the common

global factor driving asset class returns over the past month. PC1, serving

as our proxy for this global driver, now explains 63% of the variance—a 7pp

increase over the past 1m and well above the long-term average. PC1 and

PC2 combined account for almost 90% of asset class returns, substantially

exceeding the long-term average of 70% by a margin of 20pp.

n Our PCA model, regressing variables against both PC1 and PC1 & PC2

combined, identifies Gold, WGBI, and EMFI (FX-unhedged) as cheap, with

the highest upside potential to mean-revert. Conversely, equities (both EM

and DM) appear rich, showing risk of underperformance.

n External Valuation Model: While our PCA analysis highlights rising