The EMD investable universe is now worth about $15trn, compared to $2trn in 2000. More issuers have come to the market encouraged by cheap funding costs and a more liquid market. For example, one of the most recognisable investable indices for hard currency EMD, the JP Morgan EMBI Global Diversified Index, contains over 60 countries and 127 issuers.
Well-controlled inflation allows EM central banks to cut rates and this is a positive for investors holding local currency bonds
On performance, a quick comparison finds local currency bonds returned 5.2% year to date compared to 2.3% for US high yield corporate bonds and 0.71% for US Treasuries*.
Notwithstanding EMD’s big challenges, we maintain our view that it represents an attractive opportunity and in line with our principles of investing in undervalued markets which can offer positive diversification benefits for portfolios.
*Current performance is not a guide to future performance. The Credit Suisse EM local currency index total return was 5.17%, compared to 2.58% for the USD High Yield Corporate Bond Index and 0.71% for US Treasury Bond Index. All Bloomberg data as of March 27 2017 is expressed in US dollars.