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Video - EM Outlook 2017

Emerging Markets Debt: What's in store for 2017?

 

We are looking at low positive returns from Emerging Markets this year.

 

Yerlan Syzdykov, Head of Emerging Markets - Bond & High Yield, gives his view of what lies ahead for Emerging Market Debt, including the likely impact of the US election, China's growth perspectives and the outlook for EM currencies.

Real Growth, Real Yield, Real Opportunity?

March 2017
 

Emerging Markets (EM) bond generally saw steady issuance supply leading up to the Federal Open Market Committee  (FOMC) meeting in March, after which the market rallied the asset class into the close. Within the asset class, we continue to see performance from Latin American and Frontier bond markets over Asian and European alternatives. We have also begun to see positive contribution from less highly rated sovereigns. To date, Latin America continues as the strongest performer in both the sovereign hard currency and credit space.

 

A recent feature in EM is the increasing level of institutional sponsorship in the asset class. This is closely associated with liquidity; institutions tend to take long-term views on assets and thus decry tactical trading. The result is that increasing levels of institutional sponsorship can reduce the effective free float in some issues, which can increase market volatility. This can sometimes be reflected in the performance around major market events – for example, FOMC meetings. In reality, the performance pickup is less around the asset class’ underlying fundamentals and more a reflection of increased allocation. 

 

Reallocation may speak towards three broad qualities enjoyed by Emerging Markets fixed income. First, the asset class’ duration is naturally short, which help to provide protection from rising rates and steepening yield curves. Secondly, the asset class’ yield remains high versus peers, which generally supports the asset class as a whole. Lastly, with the high yield window now wide open, the market is discounting very little default risk. This makes EM look compelling versus peer asset classes. 

 

 

Emerging Markets Debt, an Underinvested Story

 

In our view, Emerging Markets are drawing attention for these reasons:

 

  • Total debt in developed markets close to 400% of GDP … for EM it’s only around 50%   
  • EM Sovereign bonds rally following the ECB’s plans to buy bonds 
  • Yields are strong in EM … currently 5.35% for sovereigns and 6.43% for High Yield 
  • A softer U.S. dollar can be positive for EM 
  • EM growth may have slowed, but it remains positive
Emerging Markets Debt

"The asset class may benefit from credit convergence in the long-term whilst having the potential to achieve higher yields in the short-term.

We aim to take full advantage by combining it with our bond selection capability."

 

Yerlan Syzdykov

Head of Emerging Markets - Bond & High Yield

Yerlan Syzdykov

Record EM fixed income inflows and assets

7th November, 2016

Our Emerging Markets fixed income range reached a record level of AuM this month, as a result of strong performance combined with record net sales in excess of €1.5 billion so far this year.  

Award Winning Expertise

 

 

For the second year running, Institutional Investor recognized our Emerging Market Debt capabilities. Our sub-fund, Pioneer Funds - Emerging Markets Bond, was honoured with the European Money Management Award in the category ‘Emerging Markets Hard Currency Debt’.