The macro case for JPMorgan USD Emerging Markets Sovereign Bond ETF (JPMB)

Emerging market fundamentals should be solid in 2024

U.S. growth has been robust in 2023, but the U.S. economy is set to slow in 2024 while emerging market (EM) growth recovers. That potential growth outperformance could bolster the region. In addition, EM central banks initiated their rate hiking cycles early, managing inflation pressures effectively and enabling many to pause or even cut rates already while DM economies remain higher for longer. Although EM sovereign spreads are slightly elevated compared to history, reflecting macro risks, fundamentals appear resilient heading into 2024, and investors can find attractive yields at decent entry points. 

Emerging market sovereigns have moved up in quality

The global economy looks healthy heading into 2024, but investors ought to balance the risks of a potential recession that did not materialize in 2023. Therefore, quality will continue to be critical. Although EM debt is often perceived to be riskier, the average credit rating of the EM debt universe has steadily risen over time, particularly over the past 5 years when the average rating has entered investment grade territory.

Emerging market debt is not a monolith, requiring a selective approach

Emerging market debt is a very heterogeneous universe, given countries’ different economic growth rates, current account balances, currencies, and debt levels. Even the composition of the corporate universe and the sovereign universe can look quite different. Therefore, a more methodical approach is crucial to include regions and securities where there is conviction in the outlook, and underweight other areas that look comparatively less favorable in order to manage risk.