Commentary Library

Emerging market (EM) debt ended the month flat overall in US dollar terms. A pick-up in volatility was evident towards the end of the month as a new COVID-19 infection wave was seen in parts of Europe and the US, and a series of new and more stringent lockdown measures were introduced. This led to investor concerns about a potential pause in the underlying economic recovery, leading to a correction in risk assets.

Emerging market (EM) debt produced positive overall returns in Q3 in USD terms, albeit with bouts of volatility, in particular with a risk-off wave seen in the last weeks of September.

Emerging Market Debt delivered mostly flat-to-modestly-positive returns (in USD terms) in August against the backdrop of mixed news flow and sentiment that led markets to trade sideways for most of the month. Easing lockdown measures across EM aided a rebound in manufacturing activity and domestic consumption, with economic data generally surprising on the upside to beat low expectations..

Emerging market (EM) debt saw strong returns in July (in USD terms) as it continued to recover from the sell-off earlier in the year. A weaker US dollar, broadly improving business confidence and purchasing managers’ indices (PMI) across Asia and Latin America, and further progress on COVID-19 vaccine trials underpinned gains. A steady rise in the oil price on improving demand, continued fiscal support, accommodative monetary policy from global central banks also provided support over the month.

The unprecedentedly rapid and large monetary and fiscal stimulus put in place by the major global economies fuelled a sharp rebound in emerging bond markets over the quarter

Global risk sentiment continued to improve over the last month as more economies began the slow process of restarting activity. However, a fundamental reappraisal of EM prospects remains underway given the ongoing uncertainties. The re-opening so far has not been followed by a spike in new COVID-19 cases, reassuring markets that the economic normalization process can continue unimpeded for now. In EM, certain regions like Asia (notably China and Korea) and Emerging Europe appear to have controlled the virus relatively well.

Strong liquidity support from both developed market (DM) and emerging market (EM) central banks, sizeable fiscal packages from governments around the world, and some easing in select EM countries’ funding strains through USD swaps with the Fed, have all helped to improve risk sentiment in EM.

Having started 2020 on a firm footing with expectations of a pick-up in global and EM growth and a pause in the US China trade war, the outlook and performance for many asset classes, including EMD, has been upended. The shock to the global economy brought about by the spread of COVID-19, along with the extreme drop in oil prices (WTI down -66% over Q1) have led to a significant increase in volatility and a sharp sell-off in risk assets, many of which rapidly reached levels not seen since the global financial crisis.

Emerging markets (EM) saw a sharp sell-off in February along with other risk assets, as new cases of COVID-19 infections spread around the globe. These significant moves across asset classes were due to fears of a broader and potentially deeper global slowdown from economic disruption brought about by the rapid spread of the virus.

Emerging Market (EM) asset performance was mixed in the opening month of 2020 amid increased geopolitical and coronavirus-related risks. The early part of the month saw raised geopolitical tensions following the US killing of Iran’s General Soleimani.