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The case for emerging markets debt hard currency investing
Over the past two decades, the emerging markets debt (EMD) universe has endured unparalleled challenges yet has grown substantially. The Emerging Markets Debt Hard Currency (EMD HC) team evaluates the opportunity-set and the drivers of returns.
30 Sep 2024
6 minute read
6 minute read
Key takeaways:
- Institutional investors face the challenge of capturing yield, diversification, and growth from their fixed income allocations. Over time, EM government bonds have typically provided investors with higher yields and differentiated returns relative to developed markets, showing modest correlation to global equities and global bonds.
- The emerging markets debt hard currency (EMD HC) debt universe spans around 70-80 countries that are subject to different economic cycles and are at varying stages of economic development, resulting in a diverse set of fundamental drivers.
- EMD HC offers the potential to isolate and benefit from the EMD return drivers, helping institutional investors with asset allocation. Focused credit analysis can be rewarded, with country allocation and security selection helping to capture alpha in EMD.
Alongside asset class diversification, EMD HC offers diversification from both a country and fundamental perspective, as there is a breadth in countries driven by a host of macroeconomic factors to varying degrees. Building diversification in portfolios through the incorporation of the asset class comes from taking advantage of different political cycles, economic policy stances and reform cycles available in EM. After enduring some unparalleled challenges, EMs have proven their resilience.
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JHI
30 Sep 2024
6 minute read
6 minute read
Key takeaways:
- Institutional investors face the challenge of capturing yield, diversification, and growth from their fixed income allocations. Over time, EM government bonds have typically provided investors with higher yields and differentiated returns relative to developed markets, showing modest correlation to global equities and global bonds.
- The emerging markets debt hard currency (EMD HC) debt universe spans around 70-80 countries that are subject to different economic cycles and are at varying stages of economic development, resulting in a diverse set of fundamental drivers.
- EMD HC offers the potential to isolate and benefit from the EMD return drivers, helping institutional investors with asset allocation. Focused credit analysis can be rewarded, with country allocation and security selection helping to capture alpha in EMD.