Emerging perspectives

Emerging Market Debt Indicator June 2022

Our experts reflect on the key questions posed by investors in recent meetings and summarise the latest developments across the EM debt universe.

Jul 11, 2022

18 minutes

EMD Team
Our experts reflect on the key questions posed by investors in recent meetings and summarise the latest developments across the EM debt universe.

This edition includes:

  • Market background
  • Top-down views and outlook for the asset class
  • Focus article: Three questions top of mind for EM Debt investors
  • Regional highlights and corporate credit market review
    Our EM debt experts summarise market developments across the sovereign debt universe in June and outline what’s taken place in the EM corporate credit market.


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The fast view

Market background

June proved to be another challenging month for fixed income markets, as the combination of higher US interest rates, persistent inflation and risk-off sentiment all took their toll. In the US, the Federal Reserve hiked rates by 75bps, while inflation data showed that consumer prices rose further in May. As a result, the yield on the 10-year Treasury rose, peaking at 3.4%, but it fell back sharply into month end to around 3.0%, as fears of a global recession became forefront of investors’ minds.

Africa

Inflationary pressures eased in both Angola and Egypt, thanks to lower food prices, while in Kenya, the central bank hiked rates by 50bps for the first time since 2015, as inflation breached the upper part of the target band. Weaker copper prices weighed on Zambia’s trade balance but it still has a healthy surplus.

Asia

Inflation is still surprising to the upside, and momentum has been picking up. China continued to gradually reopen from COVID lockdowns, helping growth to improve, but the country’s ‘zero COVID’ policy remains in place.

Latin America

After outperforming year-to-date, currencies weakened in June as commodities sold off on global recession fears. Leftist candidate Gustavo Petro won Colombia’s presidential election and his foreign minister appointment was well received. Protests continued in several countries.

Central and Eastern Europe

Inflation continued to surprise to the upside. Hawkish monetary policy kept the pressure on local bonds across the region over much of the month, while currencies came under renewed pressure from weakness in the euro and continued high energy prices.

Rest of Europe, Middle East and Africa (EMEA)

While there has been increased attention on finding a way for Ukraine to export its agriculture products, a deal seems unlikely, near term. Ukraine is struggling to finance itself but foreign budget support is finally stepping up. It was a volatile month for assets in Turkey and the authorities introduced further unorthodox measures to stem lira weakness.

EM corporate debt highlights

In a similar vein to EM hard currency sovereign debt markets, concerns over the economic outlook combined with higher US rates weighed on EM corporate bonds, with the JP Morgan CEMBI falling 3.1%. Given the market’s increased fears of a US and global recession, high-yield debt underperformed investment grade (IG).

 

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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