Emerging Market Debt: Implementation really matters as fixed income investing paradigm shifts
With traditional risk premia subdued and interest rates in advanced economies at historical lows and likely to remain that way for some time, investors are being forced to look elsewhere to generate returns.
In our view, emerging market debt (EMD) in local currency offers an attractive opportunity on the back of both fundamentals and valuations. However, we think implementation really matters when it comes to accessing EMD given the underlying shift in the paradigm of fixed income markets.
Central bank dominance and tightening regulations mean today’s new world is characterised by fractured liquidity, and in the case of EMD, the risks also include increasing concentration in the same few positions or herding. Together, these two factors leave investors heavily exposed to growing liquidity and market risk.
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