Major institutional investors are reassessing their exposure to local-currency debt in Brazil and Colombia. Morgan Stanley Investment Management has notably reduced positions in these emerging markets as fiscal imbalances continue to widen—a move that reflects growing concerns ahead of the upcoming presidential elections in both nations.

The decision underscores how budget deficits can become a key trigger for capital reallocation, particularly during politically uncertain periods. When governments face widening fiscal gaps alongside electoral cycles, institutional money tends to rotate toward safer alternatives. This shift isn't just about immediate returns; it's a signal that larger asset managers are factoring in potential policy shifts and currency volatility risks that often accompany electoral transitions in emerging markets.

For investors monitoring EM debt strategies, this repositioning highlights the importance of tracking both macro fundamentals and political calendars. Budget sustainability and electoral timelines increasingly move in tandem when it comes to determining institutional appetite for local debt.