Emerging Markets Local Debt – why this time might be different

EM local debt – standing out in difficult times

The EM debt asset class is off to one of its roughest starts of the year in recent history. At the beginning of the year continuously rising global rates, led by US Treasury yields, were the key driver for the absolute negative performance in EM debt. The threat of much earlier-than-expected monetary tightening and the withdrawal of pandemicera stimulus in the US, together with growth concerns in China soured EM investors’ sentiment further. Adding to these considerable endogenous burdens already weighing on EMD, the asset class was confronted with an additional substantial geopolitical shock in Russia’s military action in Ukraine, which could not only catalyse stagflationary impulses (i.e. lower or no growth, accompanied with much higher than expected inflation) in many countries, but also cause serious structural damage to risk appetite for EM debt.

Read our detailed Spotlight analysis here