Emerging Market Debt Indicator September 2023
In the latest edition, the EM Debt team provides an update across the investment universe and shares the latest outlook and current top-down positioning.
Chapters
01
Market background02
Top-down views and outlook03
Africa04
Asia05
Latin America06
Central and Eastern Europe, Middle East and South Africa07
EM corporate highlights01
Market background
EM fixed income had a strong month, boosted by falling global bond yields and a weaker US dollar. In the local currency market, returns were driven primarily by EM FX, but rates also generated positive returns. Among hard currency bonds, while concerns over the global macroeconomic outlook weighed on some high-yield markets early in the month, a subsequent rally in risk assets prompted a recovery.
With ongoing signs of a slowing global economy and falling inflation, government bond yields (rates) continued to fall, reflecting in positive returns across fixed income markets.
Surprisingly weak data in the US labour market caused some alarm among market participants early in the month, before subsequent data releases again supported the outlook for a soft economic landing in the US, rather than a recession. More dovish rhetoric from the Federal Reserve (Fed) provided additional support for bond markets and risk sentiment later in the month.
All of this led to a weaker US dollar over the month, with many EM currencies benefiting from this, although rising interest rates in Japan are reducing the relative attractiveness of holding EM currencies against the yen – this was again reflected in traditionally 'high carry' markets in Latin America underperforming. In contrast, 'Asia's EM local currency debt markets were key beneficiaries of the dovish shift by the Fed; falling US interest rates will allow Asian central banks to bring forward their own rate cuts.
Against this backdrop, the asset class had a strong month. In the local currency space, the JP Morgan GBI-EM returned 3.1%, driven primarily by EM FX but with healthy moves in rates markets. While concerns over the global macroeconomic outlook weighed on some high-yield hard currency markets early in the month, a subsequent rally in risk assets prompted a recovery there; overall, the sovereign index (JP Morgan EMBI GD) rose by 2.3%.
General risks. The value of investments, and any income generated from them, can fall as well as rise. 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.
Specific risks. Emerging market (inc. China): 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.
