Search this website. You can use fund codes to locate specific funds

Weekly credit insight

Chart of the week: emerging-market credit looks attractive

The outlook for emerging markets has improved. After a long period of uncertainty, which was mainly driven by the US-China trade dispute, we expect economic indicators to continue to improve.

2018 was a particularly tumultuous year, as major elections and sanctions affected emerging-market credit. Although the unexpected election result in Argentina is yet to be fully understood, this year should be a quieter one – indeed, the US elections should be the most notable ones for emerging markets.  

Conscious of the Q4 2018 market meltdown, many investors positioned themselves lightly at the end of last year. But after a major drawdown was avoided, asset allocators started to review the landscape and credit markets have experienced strong inflows this year so far.

Emerging-market credit looks particularly attractive in the current environment, and strong demand has resulted in it outperforming the rest of the credit market (see figure 1).

Figure 1. Emerging-market credit offers superior relative value

Source: Hermes Credit, as at January 2020.

Developed markets still suffer from a large share of bonds trading above call, limiting upside capture, which makes emerging markets – with their low proportion of callable bonds – a more attractive proposition. And the large share of negative-yielding assets, along with Europe’s Corporate Sector Purchase Programme, supports demand for markets outside of the European Union.

Lack of supply in emerging markets should also support valuations. This stands in contrast to developed markets, where there has been record issuance – particularly in high-yield energy. In this environment, it is more important than ever to scan the length and breadth of the global spectrum for opportunities – a topic we covered in our insights piece on a flexible approach to credit allocation.

More Insights

Does the end of China's love affair with property spell heartbreak for investors?
Investors will be profoundly impacted by what the Chinese property sector does next
The Meeting Room Webcast: Global Emerging Markets SMID, November 2021
As we navigate the ever-changing landscape of the coronavirus, the Global Emerging Markets team reflect on recent performance, and discuss the outlook for Global Emerging Markets from both a market and portfolio positioning perspective.
EV lover, she’ll take your heart because it’s greener: A lifecycle comparison between electric and combustion-engine cars
Road transport is one of the largest contributors to global warming. Its decarbonisation will therefore have a significant impact in the fight against climate change.
Impact Quarterly Report, Q3 2021
In the latest Impact Quarterly Report, we delve into the theme of Financial Inclusion, as a theme linked to 13 of the 17 UN Sustainable Development Goals (SDGs).
An asset class at a crossroads: reshaping credit through ESG
We outline our credit team’s ESG and engagement integration philosophy, and how the team is working to authentically integrate ESG into every step of its investment process.
Climate crisis in focus in EOS’s Q3 Public Engagement Report
In this issue we take a more in-depth look at the climate crisis ahead of COP26.