Emerging perspectives

Emerging Market Debt Indicator July 2022

Learn how debt investors can benefit from behavioural biases during EM interest rate-hiking cycles and read the latest developments across the investment universe.

2022 M08 5

22 minutes

EMD Team
Learn how debt investors can benefit from behavioural biases during EM interest rate-hiking cycles and read the latest developments across the investment universe.

This edition includes:

  • Market background
  • Top-down views and outlook for the asset class
  • Focus article: Riding the EM rate-hiking cycle - how debt investors can harness behavioural biases
  • Regional highlights and corporate credit market review
    Our EM debt experts summarise market developments across the sovereign debt universe in July and outline what’s taken place in the EM corporate credit market.


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The fast view

Market background

Bond yields across developed markets retreated in response to growing expectations of a global recession. This helped provide some respite across parts of the EM fixed income universe. Messages accompanying a 75bps US rate hike were interpreted as somewhat dovish, which boosted risk assets.

Africa

In Egypt, headline inflation eased thanks to lower food prices. Also, talks with the IMF are ongoing. Ghana’s parliament approved a loan facility agreement with the African Export-Import Bank. This, plus a privatisation push, will be key to securing IMF support.

Asia

Inflation continues to rise in Asia, above consensus expectations in some cases. In China, policymakers dropped the 5.5% growth target, re-iterated that property is for living and not for speculation, and confirmed that there are no plans to move away from the zero-COVID policy.

Latin America

The fast depreciation of the Chilean peso prompted the central bank to intervene aggressively in the currency market. Inflation data in Brazil was slightly lower than expected. Argentina’s bond market weakened after the finance minister resigned over tensions between the president and vice-president.

Central and Eastern Europe

Economic activity data was generally on the soft side and inflation data was more mixed after the consistent upside surprises seen in the previous months; this allowed bond markets to rally.

Rest of Europe, Middle East and Africa (EMEA)

The apparent ‘weaponisation’ of gas exports became a more prominent feature of Russia’s war tactics, pushing up gas prices and fuelling concerns over Europe’s economic outlook. Ukraine’s government devalued the hryvnia peg with the US dollar by 25% due to the continuing drop in dollar reserves.

EM corporate debt highlights

Much like most of fixed income assets, EM corporate debt staged a partial rally in July, with the overall index posting a 1.0% return, and high yield outperforming investment grade (IG). Most of this positive return came from the rally in underlying rates, given the less hawkish tones from the US Federal Reserve; credit spreads on investment-grade debt actually widened, although high-yield spreads tightened.

 

Specific risks

Emerging market: These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems. 

General risks

All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.

Authored by

EMD Team

Wichtige Informationen

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