It has not been a vintage year for emerging market debt. The JP Morgan GBI-EM Global Diversified index is down 14.5% in USD terms1 which, aside from 2015, makes it the worst annual performance since the index inception in 2002. The recent bounce in markets has seen EM debt swept higher as both risk assets and developed market bonds rallied. Much of the wider market move was thought to be the reduction of underweight or short positions as the lower than expected US CPI and signals that China is in the process of relaxing its Covid protocols, pushed against the negative asset market backdrop that investors have become accustomed to. There are questions on the durability of this rally but, in our opinion, there are several factors that should help sustain investor interest in emerging market debt.
Emerging markets have already put in a creditable bounce, with the Bloomberg EM Local Currency Liquid index making returns of 5.3% November to date. Year-end can be a volatile time, not least for the slightly less liquid corners of the bond world, but for those with an eye towards the types of strategy that could perform in 2023 then Emerging markets certainly has a considerable number of factors that could start to push in its favour. Even in the event of a fairly neutral backdrop for bonds and a steady USD during the early part of 2023, the high yields on offer from EM should provide some meaningful positive returns.
Emerging Market central banks coming to the end of their policy tightening phase
Investors looking to access EM debt can do so with SPDR ETFs. To learn more about these funds, and to view full performance histories, please click on the fund names below.
1 Year to 16 October 2022, Source Bloomberg Finance L.P.
2 Prior to 1 February 2022, the Fund was known as SPDR Bloomberg Barclays Emerging Markets Local Bond UCITS ETF (Dist), tracking the Bloomberg Barclays Emerging Markets Local Currency Liquid Government Bond Index.
3 Prior to 1 February 2022, the Fund was known as SPDR Bloomberg Barclays Emerging Markets Local Bond USD Base CCY Hdg to EUR UCITS ETF (Acc), tracking the Bloomberg Barclays Emerging Markets Local Currency Liquid Government Bond Index unhedged USD base hedged into EUR.
4 Prior to 1 February 2022, the Fund was known as SPDR Bloomberg Barclays EM Inflation Linked Local Bond UCITS ETF (Dist), tracking the Bloomberg Barclays Emerging Markets Inflation Linked 20% Capped Bond Index.
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