Emerging Market Debt Indicator May 2023

Michail Diamantopoulos shares insights gained on a recent trip to Israel and the wider EM Debt team provides an update across the rest of the universe.

Jun 7, 2023

20 minutes

EMD Team

This edition includes:

  • Market background
  • Top-down views and outlook for the asset class
  • Focus article: Notes from the road – Israel
  • Regional highlights and corporate credit market review
    Our EM debt experts summarise market developments across the sovereign debt universe in May and outline what’s taken place in the EM corporate credit market.

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The fast view

Market background

Concerns relating to US debt ceiling negotiations weighed on financial markets. After investors initially saw comments from the Federal Reserve as a signal of a likely pause in the US hiking cycle, subsequent data releases reversed this, driving up US Treasury yields. EM debt markets posted negative returns.


Egypt announced the 10% sale in Telecom Egypt, in the first phase of its privatisation programme. Nigeria’s President Tinubu was inaugurated and signalled his intent to remove the country’s fuel subsidy while also working towards a unification of FX rates. The World Bank set a schedule for re-engagement with Tunisia and approved a US$1 billion Development Policy Operations loan for Kenya.


Inflation continued to retreat across the region, with year-on-year comparisons benefiting from the high inflation rates seen a year ago. In China, following the strong first quarter, economic activity data for April came in weaker than expected. Strong equity flows into South Korea and Taiwan, helped by positive sentiment around the future demand AI will place on chip demand, helped the Taiwan dollar and Korean won outperform regional peers.

Latin America

Brazil’s Q1 GDP data beat expectations with 4% year-on-year growth, as did the primary fiscal surplus. Heightened political risk in Ecuador – President Lasso unexpectedly dissolved Congress and called for snap elections – prompted Fitch to change the country’s outlook to negative. Rampant inflation continued in Argentina, but the government’s decision to cease energy support for wealthy households improved the fiscal outlook.

Central and Eastern Europe

GDP data releases for Q1 generally pointed to weak or absent growth across the region, with inflation prints also broadly lower than expected. The improving inflation picture allowed Hungary’s central bank to cut its emergency interest rate. A more constructive tone in Hungary’s negotiations with the EU over the rule of law dispute gave cause for optimism.

Rest of Europe, Middle East and Africa (EMEA)

President Erdoğan won Turkey’s presidential election, after beating the leading opposition candidate Kamal Kılıçdaroğlu in the second round. At the time of writing Erdoğan had appointed a market-friendly, credible economist as minister of finance, fuelling a rising speculation of a return to at least a degree of orthodoxy in macroeconomic policy. The main initial implication has been reduced central bank intervention in the currency post-election, causing the lira’s depreciation to accelerate.

EM corporate debt highlights

EM corporate debt produced negative returns over May, performing in line with the EM sovereign debt index but outperforming the US corporate credit market. At the overall index level (JPM CEMBI), spreads were broadly unchanged, but the sell-off in US Treasuries yields drove negative returns. Despite this, investment-grade bonds outperformed high-yield debt as weaker sentiment drove high-yield market spreads wider and investment-grade spreads tighter.

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. 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: 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.

Authored by

EMD Team

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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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