Emerging Market Debt Indicator September 2022

Portfolio Manager Thys Louw reflects on recent market turmoil and assesses relative strength across the Africa fixed income investment universe. The wider team also highlights the latest developments across the EMD market, and shares the latest outlook.

11 Oct 2022

20 minutes

EMD Team
Portfolio Manager Thys Louw reflects on recent market turmoil and assesses relative strength across the Africa fixed income investment universe. The wider team also highlights the latest developments across the EMD market, and shares the latest outlook.

This edition includes:

  • Market background
  • Top-down views and outlook for the asset class
  • Focus article: From the eye of the storm: African fixed income
  • Regional highlights and corporate credit market review
    Our EM debt experts summarise market developments across the sovereign debt universe in September and outline what’s taken place in the EM corporate credit market.


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The fast view

Market background

It was another difficult month for EM fixed income markets, with US dollar strength and rising developed market government yields both taking their toll. Hawkish rhetoric from the US Federal Reserve continued and the ‘dot plot’ of the Fed’s interest rate forecasts was higher than expected.

Africa

The government in Egypt continues to make progress towards listing state-owned companies on the country’s stock exchange. In Ghana, the central bank hiked policy rates again as inflation risks remain elevated, and the government indicated that it is looking to fast track an IMF agreement. Kenya’s medium-term budget framework pointed to a declining deficit, reflecting fiscal consolidation.

Asia

The slowdown in global growth continued to weigh more heavily on the region’s tech-exporting economies. In China, a broad mix of data appeared to paint a picture of improving economic dynamics, but growth headwinds remain.

Latin America

In Latin America, the Brazilian central bank kept rates on hold, bringing an end to the country’s hiking cycle, as inflation continued to fall. In contrast, Chile’s monetary policymakers raised rates by more than expected as there are no signs of inflation abating there.

Central and Eastern Europe

Governments across the region continue to make efforts to cap rising energy prices and introduce windfall taxes to pay for them, while central banks try to move towards the end of the rate hiking cycle. Inflation momentum in the Czech Republic is the most encouraging in the region and appears to support the view of the central bank that it can keep rates on hold.

Rest of Europe, Middle East and Africa (EMEA)

The combination of Ukraine’s successful offensive in Kharkiv, Russia’s partial military mobilisation and annexation of parts of Ukraine have increased uncertainty over the war’s longevity and outcomes. Unorthodox policymaking and high inflation continued in Turkey. In South Africa, inflation remains contained compared with other emerging markets.

EM corporate debt highlights

As a result of the rising US Treasury yields and the risk-off backdrop, EM corporate bonds came under pressure. Investment-grade (IG) debt underperformed high yield, despite spreads widening further in high yield, reflecting IG debt’s higher sensitivity to interest rate changes. No sector or rating category in the market escaped the sell-off.

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. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.

Authored by

EMD Team

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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