Emerging markets look forward to 2019 morgan stanley. We began investing in emerging markets debt in 1991, had our first dedicated emerging markets debt account in 1994, and established a global highyield strategy that combined emerging markets and u. The biggest emergingmarket debt problem is in america. Avoiding diversification decay in emerging markets debt. March 2020 an efficient beta approach to emerging market debt. In the past, adopting an active management approach was perceived to be the best way to invest in emd. Emerging markets debt strategy profile strategy overview our competitive advantage the strategy employs a topdown, value based, and benchmark agnostic approach for managing global fixed income assets. Hikes investor flows into em debt often trail the change in real yield differential between emerging and developed markets. Our emerging market debt strategies seek to provide clients with greater return potential and the ability to boost their income and yield by investing in diversified portfolios of emerging market debt securities issued by governments or companies in both u. Emerging markets debt fund i eeidx an emergingmarkets bond fund that provides exposure to sovereign and quasisovereign issues primarily denominated in u. Our objectives in this article, beyond a brief exploration of the history of emerging market lending, are to examine the recent performance of emerging market bonds and note the. There are a total of 323 share classes in the emerging market hard currency debt emd and emerging market local currency debt eml objectives.
Emerging markets debt fund the fund combines the teams best ideas across hard currency, local currency and emerging market corporate debt strategies utilizing an opportunistic allocation process to seek high total return consisting of income and capital appreciation. Of these, 52% are institutional load funds, 19% are frontend load, 21% backend or levelload, and 8% are noload funds. Jan 14, 2020 improving growth outlook to support emerging market debt in 2020. The aftermath of debt renegotiation and market liberalization drove returns for a. Full pdf available 1 the rise of emerging markets debt. Performance disclosure unless otherwise stated all data is as at the date of this factsheet. We compare debt statistics with similar metrics for developed economies to place em in the global context.
However, the question for many countries, argues rob drijkoningen, cohead of emerging markets debt at neuberger berman, is the speeed at which the catch up theme will be played, relative to developed markets. In recent years, emerging market debt has garnered the attention of investors seeking a higher yielding alternative to developed market bonds. While highlighting the risks involved, nemerever 1996, dahiya 1997, and froland 1998 all made the case for investment in emerging market bonds. Em debt benefiting from a stronger macro, fundamental and technical backdrop. Primary debt issuance has increased, and the market has become more liquid. In nearly two decades, the value of emergingmarket debt. That is related to the questions of whether risk premiums recede and. Emerging market equities, on the other hand, have garnered a great deal more research attention. Emerging market debt emd is one of the most rapidly evolving asset classes in investment markets.
Investors had initially insisted on hard currency emerging markets bonds but, increasingly, they have added local currency bonds to their portfolios. While the increase in market size has been well documented, the fact that emd liquidity is now on a par with investment grade ig credit is less widely known. A diversifier for portfolios tilted toward developed markets and managed by eaton vance, a global fixedincome leader. Market size of emerging market corporate universe has surpassed us high yield attractive yield pickup versus developed markets 1. Sovereign debt these are bonds issued by emerging market countries in hard currencies, predominantly in usd. Current valuations, especially in local currency emerging markets debt, are attractive. March 2020 an efficient beta approach to emerging market.
An emerging markets debt analyst at capital typically focuses on countries in a geographic area for example, latin america, eastern europe or africa to enhance their assessment of relative value and the characteristics of each market. Morgan emerging market bond index global embig, the j. Derivatives may make up a part of the emerging market debt strategy, as the firm utilizes futures, forwards and interest. Fact sheet western asset emerging markets debt fund. Minimum three year investment track record in the proposed emerging market blended debt strategy of hard dollar and local currency or standalone products for each mandate. New country research head explains how role will enhance eaton vances edge in em debt. The fund provides broad emerging markets debt exposure without emerging markets currency risk. Asset management emerging market corporate bonds an evolving. Emerging frontier us germany japan a i b m russia s a turkey biem d drep u e ghana n kenya s l source. Corporate debt represents now more than 70% of total em debt 10 the emerging market corporate universe has grown at a 26% annual growth rate over the last 12 years and has far outpaced the 10% annual growth rate of the composite bond universe and has nearly quadruple the 7% growth rate of the emerging market. We offer a range of emd strategies that span the emd universe from benchmarked, hard currency sovereign, hard currency corporate and local currency sovereign strategies as well as total return strategies. Emerging markets debt morgan stanley investment management fixed income after a challenging year for risky assets, in emerging markets em fixed income in particular, we hold a constructive outlook for 2019, driven by attractive valuations, a benign global backdrop of moderate growthsubdued inflation and a u.
Timp is an acronym that stands for turkey, indonesia, mexico and philippines. Similar to bric brazil, russia, india and china, the acronym was coined by and investor. Emb etf guide stock quote, holdings, fact sheet and more. Analyst report this etf offers exposure to debt of emerging markets issuers that is denominated in u. The emerging market debt strategy seeks to outperform the global fixed income market by investing in a combination of global fixed income assets in three primary opportunities. This paper does not deal directly with sovereign debt matters. That is related to the questions of whether risk premiums recede and creditworthiness improves.
Emerging market debt in charts 2020 outlook 5 figure 7 bloomberg barclays emerging markets local currency liquid government index currency weights and annualised hedging costs back to eur however, one of the key reasons for investing in local currency em debt, in the current environment, is for the currencies to appreciate versus usd. Total developed market exposure including cash and futures was 9. This sector is less volatile than local debt due to the lack of emerging market currency risk. Request for proposals for emerging market debt investment. See medax pricing, performance snapshot, ratings, historical returns, risk considerations, and more.
As we announce the launch of our emerging markets em hard currency debt strategy, markets are in turmoil. Actively managed to aim to deliver positive absolute returns in excess of a cash benchmark aims to add value by capturing best ideas, executed in a way that seeks to generate lower levels of volatility invests across the spectrum of the emerging market debt and currencies with an. Emerging market central banks policy diffusion index 12w rolling average cut vs. Across developing countries, the performance of bonds, stocks, and currencies has been poor in absolute levels and in general below that of their more developed counterparts. None however could have foreseen the coming turmoil and shakeout. Not fdic insured t no bank guarantee t may lose value morningstar rating tm. Emerging market debt in charts q1 2020 2020 outlook.
Local currency debt su ered its worst quarterly loss since the inception of the j. Emerging markets debt portfolio lazard asset management. The fixed income analysts also work with capitals equity research team. With nearly a decade of data, we are now more aware of both the opportunities and the pitfalls in emerging market debt. We seek to produce attractive riskadjusted returns over the long term through credit, country, and currency exposure.
Mar 31, 2020 gaining a trading edge in emerging markets debt. Index benchmarks for emerging markets debt emerging markets debt has, over the past decade, attracted growing attention from investors as a higheryielding alternative. Emerging markets are no longer a speculative asset class. Asset management emerging market corporate bonds an. Emerging markets debtdeterminants of sovereign bond quality and returns outlook for emergingmarket debt remains bright after strong 2019 importance of. Metlife investment management emerging market debt team seeks to produce attractive riskadjusted returns over the long term through credit, country, and currency exposure. May 15, 2020 for investors seeking to diversify exposure to the u. Understanding emerging market bonds dukes fuqua school of. Emerging market debt metlife investment management. New developments are challenging some of the traditional. Emerging economies have received little attention in the economic debate regarding the covid19 pandemic, yet the performance of their primary market indicators, chiefly sovereign debt, foreign exchange and equities, indicate a deep deterioration is taking place.
Improving growth outlook to support emerging market debt in 2020. Seeks to maximize alpha drivers within subasset classes while opportunistically varying exposure. Morgan emerging markets bond index global diversified embigd. The main emerging market powerhouses are china and india. Overall, this analysis does not invalidate the strategic case for allocating to emerging markets in a global equity portfolio. Emerging markets debt opportunities strategy eaton vance. Times of crisis often lead to capital flight from emerging markets as investors seek safe haven assets, while the localised effects. For example, embig spreads look about 50 basis points cheap to their 10year historical average. As emerging markets have continued to develop, most institutional investors have established long. Total strategy assets for emerging market debt include all assets.
We believe return potential is best captured over the long term through country, sector and issuerlevel research, an established relative value process, and robust credit. We have seen recent falls in inflation in em, from a peak of close to 10% in october 2018 to close to 6%, based on pricestats data. To be sure you have the most recent information, please access both the annual report and the semiannual report. New developments are challenging some of the traditional perceptions around how to access it. Barings emerging markets debt blended total return fund. More recently, loan defaults by emerging markets have been rarer, with fewer. The investment case for emerging market debt russell investments. We expect another positive year for emerging market debt in 2020, with base case expectations of roughly 8% returns for emerging market hard currency, and 11% for emerging market local currency. Together, these two countries are home to over 35% of the worlds labor force and population. Global central bank easing, among other supportive factors, helped drive. Viewed from this perspective, the sovereign debt debate can easily fall into eitheror solutions for a recent overview, see eichengreen, kletzer, and mody 2004. Over the past couple of decades, emerging markets debt emd has matured into a large, diverse and growing asset class.
According to the barclays liquidity cost score lcs, the cost of trading hard currency emerging market em bonds is comparable with that of ig. In this environment, we see the potential for stronger relative returns in emerging market debt, particularly local currency bonds. In a banner year for capital markets, emerging market debt posted healthy doubledigit returns. Figure 5 emergingmarket debt returns have been efficient and uncorrelated to u. The fund combines the teams best ideas across hard currency, local currency and emerging market corporate debt strategies utilizing an opportunistic allocation process to seek high total return consisting of income and capital appreciation. Emergingmarket bonds strong performance and attractive fundamentals have recently bolstered investor interest in the sector. Emerging market debt is a category of public fixed income assets. Exhibit 3 the growth of the emerging markets bond market has been strong outstanding debt usd face value in millions yoy growth rate local sovereign external sovereign external non sovereign local non. We provide an overview of tradable debt and domestic credit markets in 54 em countries as well as the large cap, small cap and frontier markets for equities. The upward bias should also be evident in emerging market bond markets as well. Emerging market debt in charts 2020 outlook state street. The bloomberg barclays emerging markets usd aggregate index is a flagship hard currency emerging market em debt benchmark that includes fixed and floatingrate u. Capital has more than 20 years experience investing in emerging markets.
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