Across most of the risk asset classes, we continue to see ample investor demand this year. According to our in-house fund flow monitor, the combined EM debt fund universe received over $16 billion of inflows in 2019 (as of 19 March), with almost half of the inflows coming into the hard-currency sovereign space. Although these inflows have already surpassed the $13 billion that flowed out of EM debt in the second half of last year, we think further inflows are likely given the positive market environment. The current strength of investor demand is illustrated by a recent Eurobond issuance in Ghana, where the total order book was around $20 billion, although the country’s Ministry of Finance was looking to issue only $3 billion.
What does this mean for fixed income investors?
Although global growth has been slowing, the fundamental backdrop remains broadly supportive for EM debt. Investors will need to keep a close eye on central banks for any signs of a reversal to their current dovish policy stance, and on economic data to ensure that EM growth is picking up as anticipated. In the meantime, investors can take advantage of some attractive carry opportunities while also looking to extract value from selective EM corporates and sovereigns that have lagged behind in the year-to-date rally.
About the Bond Bulletin
Each week J.P. Morgan Asset Management’s Global Fixed Income, Currency and Commodities group reviews key issues for bond investors through the lens of its common Fundamental, Quantitative Valuation and Technical (FQT) research framework.
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