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The Case for Allocating to Emerging Market Debt Considerations for Euro Investors

Senior Investment Strategist
Head of Strategy & Research, APAC
Senior Investment Strategist

Emerging market debt (EMD) is a versatile asset. It offers equity investors risk mitigation potential with modest return dilution. For fixed income investors willing to move out the risk spectrum, it presents a substantial yield pick-up opportunity with compelling fundamentals and credit attributes. Investors need to be comfortable with headline and idiosyncratic risk, but in a low (and increasingly negative) yield environment EMD offers significant potential for those investors willing to take a closer look.

Key Points:

Yield Enhancement - Emerging market debt provides an attractive yield pick-up relative to developed market bonds.

Diversification Benefits - The low correlation and higher growth factor exposures of EMD assets provide diversification benefits for global bond and equity investors.

Supportive Fundamentals - Emerging economies, on average, offer stronger growth and lower debt burdens than their advanced counterparts.

Higher Volatility/Drawdown and Idiosyncratic Risks - Investors need to be aware of the potential higher volatility and drawdowns as well as the idiosyncratic risks of EMD assets.

 

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