Emerging Market Debt Indicator August 2022

Portfolio Manager Grant Webster addresses some of the key questions EM Debt investors asked him on his recent roadshow. The wider team also highlights the latest developments across the investment universe.

12 Sept 2022

21 minutes

EMD Team
Portfolio Manager Grant Webster addresses some of the key questions EM Debt investors asked him on his recent roadshow. The wider team also highlights the latest developments across the investment universe.

This edition includes:

  • Market background
  • Top-down views and outlook for the asset class
  • Focus article: EM Debt Q&A: Exploring a more constructive outlook
  • Regional highlights and corporate credit market review
    Our EM debt experts summarise market developments across the sovereign debt universe in August and outline what’s taken place in the EM corporate credit market.


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The fast view

Market background

Government bond yields across developed markets rose in August, as policymakers turned more hawkish to battle persistent inflationary pressures. This was particularly pronounced in Europe, where gas prices have continued to spiral upwards, adding to already high cost of living pressures.

Africa

Ghana finally approached the IMF for a US$3 billion deal, while in Zambia, the IMF approved a US$1.3 billion financing program. In a positive sign for Kenya’s democratic process, the Supreme Court upheld the result of the presidential election, with a victory for William Ruto.

Asia

There was a clear divergence between the tech-exporting north and the services-driven south-east region, with trade data disappointing across South Korea, Singapore and Taiwan. Data in China was weak across the board and increased COVID cases led to more lockdowns.

Latin America

Central banks in Brazil and Colombia hiked interest rates, with inflation in the former appearing to reach a peak over August. Inflation surprised on the upside in Chile and Peru, while Q2 GDP data in Mexico was slightly better than expected.

Central and Eastern Europe

Inflationary pressures broadly persisted across the region and governments are taking steps to contain energy price increases. The Czech National Bank kept interest rates on hold, in contrast to Hungary’s central bank, which raised rates as inflation dynamics are poor.

Rest of Europe, Middle East and Africa (EMEA)

Russia continued to restrict gas supplies to the EU. Ukraine successfully negotiated a freeze on external debt repayments, which bond holders approved. Growth data in South Africa remains weak. In the Middle East, the weaker oil price put more pressure on OPEC to amend production plans.

EM corporate debt highlights

EM Corporate debt (JP Morgan CEMBI BD) produced a marginally positive return in August, despite the significant continued sell-off in Treasuries, materially outperforming both the US investment-grade and high-yield markets. Positive returns in EM were driven by spread tightening, with the high-yield segment of the market outperforming investment grade.

 

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

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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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