It was a challenging end to the year for EM fixed income, as developed market bond yields rose, particularly in the US. US Treasury yields resumed their rise given signs of sticky inflation and hawkish forecasts from the US Federal Reserve (Fed) – with the Fed’s ‘dot plots’ pointing to just two rate cuts in 2025, down from four in its previous meeting. The US dollar continued its recent strong run against a global basket of currencies, helped by the Fed’s hawkish stance.
Against this backdrop, EM fixed income and currencies struggled, with the local currency debt market (JP Morgan GBI-EM GD) down 1.9% overall, driven by EM FX (-1.5%), with rates returning -0.4%. EM FX was weighed down by the continued US dollar strength, with some Latin American currencies under notable pressure. In the hard currency space, the sovereign market (JP Morgan EMBI GD) fell 1.4%, driven by investment-grade markets which are more sensitive to the moves in US Treasury yields. The high-yield area of the hard currency market fell by a more modest 0.6%, with strong performance by Lebanon, Argentina and Ukraine lifting the overall index.
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.