EM debt (in USD terms) saw strong positive returns in Q4, aided by the announcement of effective vaccines for COVID-19, the potential benefits to EM as a result of a prospective Biden administration, continued USD weakness, and increased demand for risk assets amid ample global liquidity. Returns for 2020 were positive overall (in USD terms) following a V-shaped recovery from the lows of March. This was supported by improving EM economic activity as lockdowns were gradually eased, and availability of abundant fiscal and monetary policy support. EM currencies recorded a strong rebound in Q4, a catch-up move from historically cheap FX valuations earlier in the year, but still ended 2020 in negative territory versus the US dollar. EM fundamentals, particularly fiscal deficits and gross government debt experienced a weakening trend overall in 2020 – while consolidation is expected as the global backdrop improves through 2021, these are expected to remain weak in the near term. Even as flows into EM local currency (LC) debt picked up in Q4, flows into hard currency (HC) significantly outpaced local currency for the full year, with HC inflows of +$14.1bn versus LC outflows of -$11.3bn (Source for flows: Morgan Stanley Research).