Emerging Markets Debt:
Real Growth, Real Yield, Real Opportunity?
Following the surprise Brexit referendum result, policymakers have moved to calm markets by talking down future rate rises in the U.S. This move follows speculation that the Referendum result will bring forward a British recession to 1Q’17, with growth headwind in Europe. The market now debates a Fed move in December.
With rates likely to be lower for longer, the Emerging Markets yield premium may attract interest
We expect the Brexit referendum to have a limited impact on Emerging Markets. In our view, a key risk is a stronger U.S. dollar. This may further reflect in lower commodity returns. In our opinion, this risk remains small and the asset class remains among the least exposed to Brexit.
While other sources dry up, Emerging Markets yields appear well supported
With German Bund yields negative and other mature market sovereign bonds offering little real yield, the market’s risk appetite has adjusted toward the income opportunity in Emerging Markets.
In our view, Emerging Markets are drawing attention for three reasons:
- A softer U.S. dollar tends to help Emerging Markets
- Emerging Market yields are strong...
- …and they are well supported, in our view
Market Outlook Q2 2016
Emerging Markets: The Worst May be Over
What's in store for Emerging Markets? Mauro Ratto, Head of Emerging Markets, talks about Emerging Market Debt, China's growth perspectives and his thoughts on the outlook for this year.