Investment Insights: Divergent trends, increased opportunitiesContributor Pierre-Yves Bareau
EM debt assets have maintained a strong run of performance year-to-date (Exhibit 1). Credit sectors, both sovereign and corporate, have outperformed, posting high single-digit returns. Local markets have lagged somewhat, with positive rates performance undermined by broad-based EM currency weakness relative to the U.S. dollar.
Positive EM debt performance has been largely driven by well-anchored and rangebound developed market rates, which supported the asset class despite concurrent risks stemming from a busy political calendar and some geopolitical stresses. EM currency weakness has been largely a function of an overall theme of U.S. dollar strength and idiosyncratic stories: the Russia/Ukraine stand-off, commodity price weakness and electoral uncertainties.
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The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future.