Market background
EM fixed income markets posted gains for December. While the US Federal Reserve turned notably more hawkish, market sentiment improved following the risk-off shift seen in November amid mounting evidence that the Omicron variant is milder than earlier COVID-19 variants.
Africa
The IMF approved the final disbursement under Angola’s extended fund facility program and reached a staff-level agreement with Zambia for an Extended Credit Facility. Egypt’s remittances and Suez Canal revenues remained strong, and it has secured a US$3 billion syndicated loan, which will be directed towards ESG projects.
Asia
Manufacturing in the region remains strong, with most countries running trade surpluses. Malaysia, Singapore and South Korea are seeing inflation rise due to tighter labour markets and higher transport costs. The fourth quarter statement from the People’s Bank of China (PBoC) sounded more dovish, with the PBoC acknowledging headwinds to growth and cutting the Reserve Requirement Ratio.
Latin America
Inflation is still surprising on upside for most of the region and central banks continued to be proactive in response to this. Chile’s presidential election result saw left-wing Gabriel Boric winning with relative ease (gaining 56% of the votes). While his proposal to end the private pension scheme is a slight concern, we believe it is unlikely to get through congress.
Central and Eastern Europe
Monetary policymakers in Hungary, Romania and the Czech Republic raised interest rates, as inflation continues to rise across the region. In Poland, activity data in December, including industrial production and retail sales, exceeded expectations, while inflation pressures increased further.
Rest of Europe, Middle East and Africa (EMEA)
The Turkish central bank cut interest rates again, despite soaring inflation. Given acute weakness in the lira, authorities announced a new FX-linked bank account to entice back locals. Elsewhere, Russia and Ukraine both raised interest rates, while tensions between the countries continued.
EM corporate debt highlights
The EM corporate debt market posted modest gains in December (+0.4%), halting the slide of the fourth quarter to finish the quarter down 0.6%. Volatility relating to regulatory tightening in China’s real estate sector intensified, pushing spreads to their widest levels in a decade. Despite this, the overall market has been remarkably resilient (up 0.9% in 2021), thanks to its geographic and sectoral diversity.
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
The value of investments, and any income generated from them, can fall as well as rise. Costs and charges will reduce the current and future value of investments. Where charges are taken from capital, this may constrain future growth.
Past performance is not a reliable indicator of future results. If any currency differs from the investor's home currency, returns may increase or decrease as a result of currency fluctuations.
Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made.
Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.