Unfazed by the Middle East war, dual-line capital strongly supports emerging markets: attractive valuations, stable policies, and the potential for a "virtuous cycle."

Billy Campbell of DoubleLine Capital stated that the structural convergence between developed and developing economies is creating "significant" opportunities in emerging markets, despite escalating tensions in the Middle East causing global investors to feel unsettled. Campbell, head of global sovereign debt team at Jeffrey Gundlach's firm, stated that if the US dollar resumes its decline and central banks around the world continue to cut rates, emerging market economies may be on the verge of a "benign feedback loop." In a report, he wrote, "Emerging market local currency fixed income assets present multiple sources of value." For global investors who find the valuation of financial assets in developed markets to be too high, these opportunities should be a "welcome relief." Over the past year, local bonds in developing countries have outperformed similar bonds globally. This week, as tensions escalate in the Middle East - with the US strike on Iran over the weekend causing both the US dollar and oil prices to surge - the resilience of emerging markets is being put to the test. Risk aversion sentiment eased in many markets on Wednesday, after previously leading to significant currency depreciation in countries like South Korea and Chile, while developing country exchange rates and stock benchmarks also experienced their largest single-day declines in years. Nevertheless, Campbell stated that these developments are more likely to affect short-term price movements rather than alter long-term structural themes. He added that DoubleLine Capital's strategy has almost no direct risk exposure to the Middle East region, and the company has adjusted its portfolio to be slightly less sensitive to interest rate changes than benchmark indices. Prior to the release of this report, Campbell had warned that some developed economies are brewing "conflicts," with rising fiscal costs, weak growth prospects, and increasing social pressures threatening to create a "vicious cycle." In contrast, he wrote that many emerging economies are in a more favorable position in terms of inflation and fiscal policy, and are expected to achieve stronger growth by 2026. After decades of globalization, governments in several large developing countries have diversified their domestic economies, expanded their investor base, and strengthened policy frameworks. Commodity-exporting countries such as Chile, Peru, and South Africa are expected to benefit from global demand growth related to infrastructure and defense spending in developed economies. According to Bloomberg compiled data, the currencies of these countries have strengthened over the past year, with the Chilean peso rising by 5%, the Peruvian sol by 8%, and the South African rand by nearly 13%. Campbell also highlighted the attractive nominal arbitrage space and real yields in countries like Brazil and South Africa, where policymakers have anchored inflation expectations and mitigated political risks. "Global investors are largely overlooking the returns in emerging markets," he wrote. "More astute investors can take advantage of the trend of 'convergence between emerging and developed markets'."