At the beginning of 2014, most investors were cautious on emerging debt. Has the market proved them right?

No, contrary to expectations, the emerging debt market has risen sharply since the beginning of the year. The JPM EMBI Global Hedged (EUR) index is up 9.3%1 so far this year and was even flirting with 10% only a few days ago.

Unlike the consensus, we had been rather positive on emerging debt since last autumn as we found valuations attractive and technical factors generally favourable. That is why we chose to reduce our cash position and gradually take on more risk. We saw the market advancing by 5-10% in 2014 so it has so far performed better than we expected.

There are two main reasons for this: first, lower US yields as the recovery stalled in the first half, support from the Fed and persistently tame inflation. Second, attractive spreads on emerging debt and favourable investor positioning.

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