(Bloomberg) -- Emerging-market investors should shift to safer assets over the medium-term, as a surge in volatility is coming, according to Societe Generale SA.

Softer global growth, rising fears of a crisis and higher policy uncertainty will likely lead to a turbulent market environment, wrote strategists including Jason Daw in a note Thursday. At current valuations, investors are not being sufficiently compensated for late-cycle tail risks, they argued.

“We are entering a dangerous and higher volatility phase for emerging markets,” they said. “Owning EM assets, especially if just for carry, at this stage of the cycle is playing with fire.”

Developing-nation bonds and currencies have had a volatile two months, first slumping on renewed fears of a synchronized global slowdown and re-ignited U.S.-China trade tensions, then recovering on increased bets of central bank stimulus. The Bloomberg Barclays EM Local Currency Total Return Index has risen about 3% since mid-May, and the MSCI Emerging Markets Currency Index is up about 0.8%.

Developing nation currencies should weaken over the next six to 12 months, with downside risks including trade tensions, investor positioning and unattractive rate spreads, the strategists argued. That will have a knock-on effect in fixed income markets, and justifies an underweight position in local-currency emerging market bonds, they wrote.

While lower U.S. rates can help EM bond markets in the short-term, the strategists hold a more bearish view than consensus further out, they said.

“Wait for better opportunities once growth momentum improves and EM yields become attractive relative to the U.S.,” the strategists wrote.

To contact the reporter on this story: Cormac Mullen in Tokyo at cmullen9@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Tomoko Yamazaki, Adam Haigh

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