Emerging Markets Debt

Emerging Markets Debt: Not Just for the Yield-Seekers

Investors tend to seek emerging market (EM) debt when they need to enhance yield within their fixed income allocations. But a dedicated allocation to EM debt can offer investors much more than yield enhancement alone. Today, volatility has brought dispersion back to these markets, creating new opportunities to invest in assets at attractive valuations.

Growth, complexity, and opportunity on the rise

From 2001 to 2017, EM economies’ share of world gross domestic product (GDP) doubled from approximately 20% to 40%. Among the profound changes has been the evolution of EM capital markets. As debt markets have expanded to over US$19 trillion across three major market segments, so has the accessibility for foreign investors (US$5 trillion available). 1

Going forward, EM debt may prove even more attractive as the investable universe has grown and both economies and corporate balance sheets have strengthened.

Emerging Markets Debt Universe

Emerging Market Debt Universe

Source: JPM estimates for market capitalization as of September 2018. For illustrative purposes only. We are not soliciting or recommending any action based on this material.

However, investors need to understand the risks pertaining to individual EM markets in order to be able to capture these opportunities, as economic and political woes have made headlines and stoked volatility.

Opportunities abound for active management

The opportunistic environment present in EM today, risks and all, allows skilled active managers to excel.

The opportunity set is much larger and more diverse than many people realize. For example, the JP Morgan Semi Broad Diversified benchmark has some 620 issuers and 1,300 securities in 52 different countries.2 And while ETFs are gaining prominence in the EM debt space, they still have a long way to go in effectively replicating this asset class.

PineBridge, as an active manager with one of the largest and most experienced teams in EM debt, is uniquely positioned to deliver the type of expected outcomes from a broadly diversified opportunity set. This is especially true in an environment where returns will be challenged and dispersion will likely be much greater overall.

1Source: IMF, Bloomberg, Barclays and PineBridge Investments as of 31 December 2018. Global Bond Indices represented by Bloomberg Barclays Global Aggregate Index.
2 Source: JP Morgan as of 31 December 2018.

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