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New institutional investor insights

Diversification is our highest-conviction idea. Institutional investors need to broaden market exposure to more opportunities and risks to reach long-term objectives in today's low-yield environment.

Best ideas
  • We continue to like local markets across several markets as well as dollar-denominated debt in both investment grade and select high yield countries.
  • Some of these countries include Ukraine, Egypt and Brazil where we remain favorable on the reform agenda, and the likes of Indonesia and Peru, which offer macroeconomic policy stability.
  • We also see opportunities in some of the less well-known markets, such as Uzbekistan, Jamaica, Angola and Bermuda.

Emerging
markets debt

Opportunities and positioning


We remain constructive on emerging markets debt due to a supportive macro environment and relative valuations versus developed markets. Many aspects of emerging markets — hard currency sovereign and corporate credit, local currency bonds and foreign exchange — remain attractive relative to developed markets.

We continue to expect further rate cuts in many economies where inflationary pressures remain benign or are falling, which will continue to support growth. Looser monetary policy at core central banks should continue to drive inflows and limited net new issuance in external debt markets should also continue to support the asset class. Being nimble and selective will remain key.

The returns on local markets may be boosted more by currency than duration if we were to see the U.S. dollar moving sideways or weakening. We think the U.S. dollar may begin to get weighed down by rising valuations, stabilizing global growth, room for further Fed cuts and posturing by the U.S. government.

Risks to our outlook


The trade war creates uncertainty and hurts global trade and manufacturing, which tends to be a large part of EM economic and market performance. Emerging markets will struggle to outperform if trade tensions escalate, but they will respond well amid signs of any improvement in relations between the U.S. and China.

Emerging markets economies and issuers could come under pressure if we see substantial and sustained increase in U.S. treasuries or the U.S. dollar.

Portfolio context


Emerging markets offer opportunities for investors seeking the longer-term value risk premium. An allocation to debt markets provides less volatile exposure to the value risk premium and to the EM growth premium relative to developed markets.

With rates in developed markets expected to remain range-bound, we look to access U.S. rates duration and better-quality adjusted spread duration using hard currency EM debt as opposed to U.S. high yield bonds.

Local EM debt lends itself well to security selection alpha and remains a good place to spend a portion of a portfolio’s active risk budget.

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This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.

Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. A word on risk All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Equity investing involves risk. Foreign investments are also subject to political, currency and regulatory risks. These risks may be magnified in emerging markets. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income. Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. There are special risks associated with investments in high yield bonds, hedging activities and the potential use of leverage. Portfolios that include lower rated municipal bonds, commonly referred to as “high yield” or “junk” bonds, which are considered to be speculative, the credit and investment risk is heightened for the portfolio. Credit ratings are subject to change. AAA, AA, A, and BBB are investment grade ratings; BB, B, CCC/CC/C and D are below-investment grade ratings. As an asset class, real assets are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Socially Responsible Investments are subject to Social Criteria Risk, namely the risk that because social criteria excludes securities of certain issuers for non-financial reasons, investors may forgo some market opportunities available to those that don’t use these criteria. Investors should be aware that alternative investments including private equity and private debt are speculative, subject to substantial risks including the risks associated with limited liquidity, the use of leverage, short sales and concentrated investments and may involve complex tax structures and investment strategies. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative investments are not suitable for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future results, and there can be no assurance that comparable returns will be achieved by any strategy.

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