Remain Selective on EM Debt

We continue to favour EM sovereign debt as an alternative to stretched developed-market debt. We like the higher initial yields on offer and potential capital upside from monetary easing and rolldown from steeper yield curves (top-left chart). If we looked only at...

Global Trade Key Driver of EM Returns

Since the peak back in April, most EM equities markets have seen declines or consolidation (top-left chart). The temptation is to view this as a buying opportunity to front-run more aggressive central bank easing (especially from eg the PBoC in China). Although we...

Consider Sovereign Default Protection

The abrupt shift in G10 monetary policy expectations has not only triggered a substantial repricing of long-end rates, but it has also underpinned a reduction in credit risk-premiums. This is particularly evident for emerging-market sovereign issuers where the cost of...

Use Risk Rally to buy Default Protection

This post was taken from our March 5th weekly report. In line with rebounding equity markets following the 4Q18 correction, credit risk-premia have compressed sharply. This is particularly notable for the big political risk plays of 2018. UK CDS spreads have narrowed...

Locals see Opportunity in LATAM

We have previously highlighted that despite the global equity selloff there has been only a marginal decline in flows to emerging market equity ETFs, which suggests that investors remain committed for the time being. We have dug further into fund flows for Brazil and...

Capital Committed to EM for the time being

In an almost textbook fashion, a stronger dollar and rising US rates has triggered a broad emerging market sell-off and surge in volatility. However, somewhat atypically there is little evidence so far of foreign capital bolting for the exit, despite the gradual...

EM Credit Risk faces Repricing

Credit risk in emerging markets has long been mispriced as the impact of unprecedented monetary stimulus and record low policy rates seemingly placated concerns about higher leverage. However, with the rise in US rates claiming its first casualties (Argentina and...