Emerging market debt fund inflows have surpassed USD 18 billion year to date (to 9 July), while only witnessing two months of net outflows. Meanwhile, net supply is expected to remain light, which provides further support for the asset class. Fund positioning as a whole among emerging market managers has been biased towards a risk-off tilt, suggesting that some countries have benefited more from fund inflows than others.
What does this mean for fixed income investors?
Although there were no negative surprises from the G20 summit, trade tensions between the US and China still have the potential to further impact global growth expectations. For the time being though, the growth outlook for emerging markets remains favourable to that of developed markets. Furthermore, emerging markets that have managed to maintain relatively high real yields have given themselves a higher degree of flexibility in their monetary policies. With the search for yield also set to continue, the backdrop for emerging market debt therefore appears positive. But with idiosyncratic risks abound, investors may benefit from careful country selection.
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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