Emerging Market Debt Indicator May 2024

Our EM Debt team provides an update across the investment universe and shares the latest outlook and current top-down positioning.

12. Juni 2024

14 minutes

EMD Team

Chapters

01
Market background
02
Top-down views and outlook
03
Africa
04
Asia
05
Latin America
06
Central and Eastern Europe, Middle East and South Africa
07
EM corporate highlights
01

Market background

Close-up of dark green leaves
For much of May, emerging market fixed income markets benefited from the increasingly dovish outlook for US monetary policy. Despite the reversal that happened later in the month and led to a sell-off across global bond markets, the EM debt asset class still managed to make gains.

Fixed income markets performed well in the first half of May. Macroeconomic data - including weaker-than-expected US non-farm payrolls and US CPI inflation that was in line with expectations – combined with central bank rhetoric to support a more dovish outlook for monetary policy. This reversed later in the month as the combination of renewed signs of stubborn inflation in the UK and Europe, hawkish comments from the US Federal Reserve, and a series of weak US Treasury auctions prompted a sell-off across global fixed income markets.

For much of May, emerging market (EM) fixed income markets benefited from the increasingly dovish outlook for US monetary policy. Despite the reversal that happened later in the month and led to a sell-off across global bond markets, the EM asset class still managed to make gains. The local currency debt market (JP Morgan Government Bond Index-Emerging Markets) posted a 1.6% gain, driven by positive moves in FX and rates markets. The hard currency sovereign debt market (JP Morgan EM Bond Index) rose by 1.8%, and corporate credit market (JP Morgan Corporate EM Bond Index) by 1.5% - in each case, both the investment-grade and high-yield markets posted gains.

A more divergent inflation picture has made the outlook for monetary policy increasingly diverse. For instance, in Latin America, rising inflation expectations forced Brazil’s central bank into a more hawkish stance; in contrast, its counterpart in Peru was able to resume rate cuts thanks to a lower-than-expected inflation print. Turning to Africa, inflation in Nigeria was slightly higher than expected, and the central bank hiked rates by more than expected (150bps). Ghana was one of the top-performing hard currency debt markets; authorities moved closer to signing a memorandum of understanding with bilateral creditors, paving the way for the Eurobond restructuring to be finalised. In Asia, China’s economy continued to be bifurcated, with weak domestic demand counteracting strong external demand. India held its elections during May, with the results announced in early June. Surprisingly, Modi’s BJP party did not manage to secure a majority, returning India to coalition politics. In South Africa, the incumbent ANC party performed much worse than expected in the elections and did not achieve an absolute majority for the first time since 1994. This has kept market volatility elevated.

Authored by

EMD Team

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Investment Process
Any description or information regarding investment process is provided for illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at the discretion of the manager without notice. References to specific investments, strategies or investment vehicles are for illustrative purposes only and should not be relied upon as a recommendation to purchase or sell such investments or to engage in any particular Strategy. Portfolio data is expected to change and there is no assurance that the actual portfolio will remain as described herein. There is no assurance that the investments presented will be available in the future at the levels presented, with the same characteristics or be available at all. Past performance is no guarantee of future results and has no bearing upon the ability of Manager to construct the illustrative portfolio and implement its investment strategy or investment objective.