Emerging Market Debt Indicator December 2023
Our 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
The US presidential election outcome drove expectations of a slower pace of rate cuts from the Federal Reserve and an economic growth boost, with the US dollar strengthening. This resulted in mixed performance for EM fixed income assets, with some EM FX markets struggling while select high-yield hard currency debt markets rallied due to country specific developments.
Yields across government bond markets generally fell in November, despite heightened market volatility early in the month relating to Donald Trump’s US presidential election victory. Although Trump’s treasury secretary nomination injected some calm into fixed income markets, a robust US economic growth print and rise in monthly inflation led to expectations of a slower pace of monetary policy loosening in the US.
Against this backdrop, performance in emerging market (EM) fixed income was mixed. On the local currency side, the JP Morgan GBI-EM GD fell by 0.6%; although hedged local currency bonds returned 0.9% over the month, the EM currency market fell 1.4% - reflecting pressure from a stronger US dollar and the expectation that US interest rates will remain relatively high. The Brazilian real was among the worst performing currencies, after the country’s long-awaited budget-cut announcements disappointed markets. In contrast, it was another strong month for the Nigerian naira.
Turning to the hard currency market, the JP Morgan EMBI GD index ended the month up 1.2%, primarily driven by high-yield market returns, although investment-grade markets also posted gains. High-yield markets that continued their strong run included Argentina and Sri Lanka, with the former boosted by a sustained strong fiscal surplus, and the latter benefiting from discussions progressing between the newly elected administration and the IMF on the country’s debt restructuring.
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.
