Key Takeaways
- Emerging market carry trades are anticipated to extend their strong performance into 2026, following a robust year in 2025, with some analysts projecting returns near 8% for local-currency emerging-market debt by mid-2026.
- The United Arab Emirates and Cyprus are significantly enhancing bilateral relations, focusing on investments, energy, and economic cooperation, with Cyprus set to assume the EU Presidency in January 2026.
- A terrorist shooting incident at a Jewish gathering in Sydney, Australia, has drawn strong condemnation from the UAE and Jordan, highlighting global security concerns.
Emerging Market Carry Trades Eye Strong 2026
Investors are signaling continued optimism for carry trades across emerging markets (EM), expecting the popular strategy to deliver further gains in 2026 after a "blockbuster year" in 2025. Major Wall Street institutions are preparing for another robust year in emerging markets, driven by expectations of a softer US dollar and the global surge in artificial intelligence (AI) investment.
In 2025, local-currency emerging-market bonds generated approximately 7% in returns, marking their best performance since 2020, while a broad emerging-market currency index climbed over 6%. Strategists at Morgan Stanley (MS) anticipate returns for local-currency emerging-market debt to reach around 8% by mid-2026. A key gauge tracking carry-trade returns across eight emerging markets, funded by short positions in the dollar, saw a jump of more than 12% in 2025. This bullish outlook is largely underpinned by the expectation of further Federal Reserve rate cuts. However, some global money managers are cautioning about potential risks from overcrowding in certain EM trades, such as the Brazilian real and AI-linked stocks, which could lead to increased volatility in foreign exchange markets.
UAE and Cyprus Forge Deeper Strategic Ties
The President of the United Arab Emirates, Sheikh Mohammed bin Zayed al Nahyan, is undertaking a historic official visit to Cyprus at the invitation of President Nikos Christodoulides. This visit signifies a new momentum in bilateral relations, with discussions centered on enhancing investments, energy, and broader economic cooperation. The talks also encompass prospects for strengthening relations between the European Union and Gulf countries, especially as Cyprus is poised to assume the Presidency of the Council of the European Union on January 1, 2026.
In conjunction with the presidential visit, UAE Ministers and other officials participated in an investment forum alongside Invest Cyprus and the Cyprus Chamber of Commerce and Industry. The forum aimed to bolster investment and business cooperation, with a focus on establishing stable structures and promoting mature projects. Both leaders are expected to adopt a Joint Declaration to further upgrade their strategic relationship, underscoring Cyprus's role as a reliable partner and stable hub in the Eastern Mediterranean.
International Condemnation Follows Sydney Attack
A terrorist shooting incident at a Jewish gathering in Sydney, Australia, has drawn swift international condemnation. The United Arab Emirates strongly condemned the attack, which resulted in multiple deaths and injuries, reaffirming its rejection of all forms of violence and terrorism. Similarly, the Jordanian Ministry of Foreign Affairs and Expatriates expressed its condemnation and full solidarity with Australia, emphasizing its stance against acts aimed at undermining security and stability.
The attack occurred at Bondi Beach during a Hanukkah celebration, with Australian authorities describing it as a terrorist act. Reports indicate the death toll rose to ten, including one attacker, with twelve civilians and two police officers sustaining injuries. Following the incident, Hanukkah celebrations in Melbourne were reportedly cancelled as a precautionary measure.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.