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Addressing Challenges with Solutions

Implications of Developed Market Populist Policies on Emerging Markets Debt Investing

Yerlan Syzdykov

Policy decisions, such as moves to normalise interest rates in the U.S., impact Emerging Markets. The EM Debt team in Pioneer Investments is one of the most established in the industry with a proven, long-term track record in Emerging Markets Credit.

 

Pioneer Funds - Emerging Markets Bond
Morningstar RatingTM

Investment Experts
Video Interview

challenge1-yerlan-syzdykov
  • Yerlan Syzdykov - Head of Emerging Markets - Bond & High Yield
  • Andrew Acheson - Portfolio Manager
  • Cosimo Marasciulo - Head of European Fixed Income

Overview

For the first time in a decade, we are approaching a major paradigm shift driven by an acceleration in fiscal policy, which is emerging as the major driver to spur economic growth. In the U.S., the move from monetary to fiscal stimulus has already started, with the Federal Reserve on the path of raising rates and a pro-growth fiscal stance that should come from the Trump administration.


Europe and Japan are a different story. Here ultra-loose monetary policy remains in place, but fiscal policy is again taking centre stage. This move towards fiscal policy, as the catalyst for expansion, can be positive and bring sustainable growth if correctly implemented. However, the path to fiscal easing will not be an easy one, as debt has piled up since the Great Financial Crisis of 2008. Consequently, any further increase in debt will need to be temporary and not undermine long-term economic growth.


What does this mean for investors? This regime change comes at a time when U.S. stocks prices are at all-time highs, in a bull market that has been ongoing for 95 months. Pro-growth fiscal policy should further support Equities, while it could mark the end of the longest bond bull market in history, possibly resulting in volatility spikes.


For investors it is time to reassess portfolio objectives, risks and positioning to be prepared for this new environment.