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Fixed Income

Making Sense of Today's EM Debt Environment

September 2018 - 5 min read

Dr. Ricardo Adrogue, Head of Barings' Emerging Markets Debt Group, discusses risks and opportunities in today's dynamic landscape - and how investors can seek to navigate it.

In a recent interview, Dr. Ricardo Adrogué, Head of Global Sovereign Debt and Currencies, discussed risks and opportunities in today’s dynamic environment—and how investors can seek to navigate it.

Broadly speaking, what is your view of EMD in today’s environment?

There is no denying that 2018 so far has been a challenging, volatile year for emerging markets (EM) debt. But amid all the noise, we believe it’s important to keep in mind that the economic and fundamental backdrop for the asset class remains largely positive. In fact, we continue to see a number of attractive opportunities across EM regions and countries.

Global growth is strong overall and we predict will remain so by historical standards in 2018, with some EMs leading the way. EM inflation remains at 17-year lows, which may allow local rates to continue to come down in select EM countries going forward. Balance of payments and current accounts across EM countries are generally sound. Many EM economies have seen substantial adjustments to their external accounts.

In addition, company fundamentals have continued to improve on the back of healthy economic growth and higher commodity prices. EM corporate earnings and balance sheets have continued to be generally solid, while corporate leverage is expected to decline. Corporate and sovereign default rates remain below historical averages. In many instances, recent volatility in EM debt assets has made valuations attractive relative to company fundamentals.

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