Ricardo Adrogue, Head of Global Sovereign Debt and Currencies discusses the Barings' team's increasingly positive view on the outlook for emerging markets debt.
Emerging Markets
Emerging Markets Debt: Navigating A Shifting Landscape
Emerging Markets are rife with opportunity, but managing risks is critical.
From COVID to trade tensions to geopolitical conflict, there are a number of risks facing emerging markets debt investors. But attractive opportunities continue to materialize across the EM spectrum, including in local currency, sovereign hard currency and corporate debt. The key to capitalizing on them is selectivity.
Emerging markets can offer a potential yield premium versus developed market debt.
Challenges will persist, but not all countries and companies will be equally impacted.
Volatility often leads to price dislocation, creating value opportunities for investors.
When it comes to emerging markets sovereign debt, successful engagement often comes from asking the right questions and monitoring the right metrics.
With the inflation and geopolitical fogs around the world dissipating, and a monetary policy pivot potentially in the cards, 2023 is shaping up to be a promising year for emerging markets debt.
The current environment is challenging, but much like in the past, opportunities are beginning to arise across the EM debt landscape.
What lies ahead for EM debt markets in 2022? Risks include higher rates and inflation as well as uncertainties surrounding China and the path of the pandemic. But with defaults still low and spreads wide by historical standards, opportunities look likely to arise.
When it comes to emerging markets, index tracking can result in both increased risks and missed opportunities.
While volatility resurfaced in the third quarter, there are a number of positive factors that continue to support EM sovereign, corporate and local debt.
Why some metrics are more accurate, more equitable, and more efficient than others.
Chinese corporates are experiencing growing pains as fines and restrictions rain down on sectors like tech, real estate and education—but select opportunities are emerging as well.
While the potential for inflation and rising rates could create a headwind for EM debt, a short duration approach can provide an opportunity to pick up incremental yield and diversification, with less volatility.
EM companies are making strides when it comes to capturing and disclosing climate risks, but there is work still to be done. Encouragingly, investors and managers are often able to go a few steps further to fill the gaps.
The EM growth picture remains positive, but with the Fed’s hawkish pivot toward quarter-end, sovereign and corporate debt look better positioned than local currencies.
Ricardo Adrogue and Kawtar Ed-Dahmani see room for positive economic surprises in emerging markets despite concerns from COVID to higher interest rates to inflation.