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, EMD presents a significant yield pick-up opportunity as fundamentals continue to be relatively healthy, notwithstanding some notable deterioration in the fiscal backdrop during 2020. Investors need to be comfortable with headline and idiosyncratic risk, but in a low (and in some quarters, negative) yield environment, EMD offers significant potential for Australian investors willing to take a closer look.
The views expressed in this material are the views of Investment Strategy and Research Group through the period ended August 2021 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Investing in foreign domiciled securities may involve risk of capital loss from unfavourable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations. Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries. Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Diversification does not ensure a profit or guarantee against loss.