Emerging Market Debt: Fear Creates Opportunities But Pick Your Spots

A cocktail of uninspiring emerging market (EM) growth outlook and a strong US dollar means hard currency bonds are set to outperform local currency in 2015 even though the starting point is much more attractive for the latter. 

In an environment of moderately increasing US Treasury rates, the lower duration and higher spread cushion of EM corporates may help them to outperform sovereigns where uncertainty over a number of special situations, including Ukraine, Venezuela, Argentina as well as exposure of some exporting nations, particularly in Africa, to lower commodity prices may weigh on returns. Ultimately though, getting China, Brazil and Russia developments right will be the biggest sway factor to return expectations and outperformance.

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