This edition includes:
- Market background
- Top-down views and outlook for the asset class
- Regional highlights and corporate credit market review
Our EM debt experts summarise February’s market developments across the sovereign debt universe and outline what’s taken place in the EM corporate credit market.
The fast view
Market background
The Russian invasion of Ukraine dominated newsflow and asset price moves, with global financial markets plunging on 24 February and remaining highly volatile.
Africa
Inflation moved marginally higher in Uganda but fell slightly in Kenya on the back of lower food prices and base effects. Egypt’s trade deficit continues to narrow given the higher price of gas exports, while remittances remain strong.
Asia
Asia appears to be relatively well insulated overall from the war in Ukraine, but higher oil prices will weigh on current accounts across the region, given most are net oil importers. The tourism outlook for Thailand turned particularly positive over February.
Latin America
Upside inflation surprises continued into February. In Peru, political turmoil resulted in a cabinet shake-up, including the appointment of a new minister of finance who is a technocrat with previous experience. Argentina reached an agreement with the IMF (yet to be approved by Congress).
Central and Eastern Europe
News of Russia’s invasion of Ukraine weighed on currencies in the region, putting additional pressure on central banks to increase interest rates as they tackle inflation. Inflation rose above expectations in Hungary; the central bank again increased rates by 50bps, but strengthened its hawkish rhetoric.
Rest of Europe, Middle East and Africa (EMEA)
Russian and Ukrainian assets came under severe pressure. Elsewhere, inflation continued to rise in Turkey, with the average figure expected to be 49% this year, while in South Africa, despite the rise in the oil price, the terms of trade improved over February.
EM corporate debt highlights
The backdrop of rising rates and the subsequent abrupt risk-off shift resulted in the JP Morgan CEMBI falling 4.8%, with investment-grade (IG) debt down 4.5% and the high-yield market down 5.3%. Russian and Ukrainian assets drove these market moves.
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.
