This Way To Emerging Market Debt..Global Macro Opinion

MarketsMuse fixed income and global macro update courtesy of extract from blog post at II’s blog by James Craige, the head of emerging-markets debt at Stone Harbor Investment Partners in New York.

Two years of challenged returns, and high volatility, by emerging-markets local currency debt has prompted questions from investors. Is emerging-markets local currency debt still a valid asset class? How will factors such as lower commodities prices and changes in the U.S. Federal Reserve’s policy rate affect such debt? What is its market outlook? These are sound concerns, to be sure. But none of them alter our view that the asset class remains as legitimate as ever.

Craige_Jim_250Multiple factors, including weaker-than-expected growth, capital outflows, heightened foreign exchange volatility and geopolitical tensions, have contributed to the poor performance of local currency–denominated emerging-markets debt — particularly the forex component of returns. The halving of the market price of oil in the second half of 2014 created further concerns. We believe, however, that this constellation of factors is unlikely to reoccur in the same way or with the same intensity. At current valuations, emerging-markets local currency bonds are set to outperform other fixed-income segments.

Read who, why and how (to leverage this view point) via the full blog post at Institutional Investor