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

Research evidence excerpt

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

Deutsche Bank

Research

Emerging Europe Emerging Markets Date

16 July 2026

EM Special

Publication

EM local markets vs. externals: how

much is priced in? July 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, b) explanatory power estimates of EMFI vs. externals in aggregates

and individually, c) beta-analysis d) projections of what DB's forecasts imply for Sameer Goel

Macro Strategist

EMFI returns, e) a ranking for attractive RV trades (based on the dislocations vs

+65-642-36973

externals), f) 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 moderate decrease in the

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

serving as our proxy for this global driver, now explains 61% of the variance

—a 2pp decrease over the past 1m but still well above the long-term

average. PC1 and PC2 combined account for almost 83% of asset class

returns, also notably exceeding the long-term average of 70%.

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

combined, identifies WGBI, gold and oil as cheap, with the highest upside

potential to mean-revert. Conversely, EMFX (including carry), US equities

and European equities look particularly rich, showing risk of

underperformance.

n External Valuation Model: Our external valuation model for EMFI shows

continued strong influence of externals. The R2 on 10Y bonds, primarily