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Public Fixed Income

EM Debt: Navigating a Shifting Macro Backdrop

February 2019 - 7 min read

After a rocky 2018, the picture may be brightening for emerging markets debt. From rising rates to trade wars, some of last year’s headwinds look to be receding, at least for now. Barings’ Ricardo Adroguè and Omotunde Lawal highlight opportunities they’re currently seeing.

In this Q&A, Barings’ Head of Global Sovereign Debt and Currencies, Ricardo Adroguè, and Head of Emerging Markets Corporate Debt, Omotunde Lawal, discuss possible outcomes of the trade tensions with China, Venezuela’s evolving status as a political hotspot, and why we have high conviction in Mexico.

When considering emerging markets debt as a broad universe, how would you frame the issuer types, overall market size and associated risks?

OMOTUNDE: When we speak about emerging markets debt, we're actually talking about three distinct sub-strategies. The first is hard currency corporates; the second is hard currency sovereigns; and the third is local bonds—that is, bonds issued in the countries/local jurisdictions themselves. Whereas the local universe is roughly $7.5 trillion, the hard currency and corporate universes are roughly $1 trillion and $2.1 trillion, respectively. This compares to the U.S. investment grade universe of $5.7 trillion and the U.S. high yield universe of $1.5 trillion. From a diversification standpoint, over 70 countries are represented within the space, and issuers span the ratings spectrum from AA through CCC. So, we are talking about a very broad asset class.


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