Emerging Market Debt Commentary: November 2022

The performance of emerging market debt in November reflected signs of investor optimism amid softer inflation data in the US, the anticipated reduction in the pace of Fed hikes, and rising prospects of China’s economy reopening. The Chinese government is expected to announce some relaxation of its approach to combat COVID-19 to address mounting social frustrations. The weakening of the Omicron variant and the improvement in vaccination rates in China added to the optimism that the zero-COVID policy could be dropped.

The G20 summit in Bali, Indonesia, produced outcomes that were constructive for emerging markets, especially the meeting between US President Joe Biden and Chinese President Xi Jinping with an agreement reached on climate change cooperation. Despite the ongoing war, Russia and Ukraine announced an extension of the grain deal (on safe passage of Ukrainian vessels) for another 120 days from 19th November. The explicit condition on exports of Russian fertilizers was an important condition for the deal’s extension.

The involvement of the International Monetary Fund (IMF) in frontier markets continued to be in focus. Elections in Turkey and Poland scheduled for 2023 have focused attention on rising spending and growth pressures. In Latin America (LatAm), markets are pricing in greater stability around interest rates, especially in Brazil and Chile. In Asia, central banks remain relatively hawkish in their approach to policy rate hikes, although a dovish pivot in the near term is increasingly expected. During November 2022, hard currency net inflows were $1.1bn, while local currency net outflows amounted to -$2.5bn, according to JP Morgan.