With investors struggling to find much‑needed yield, we believe emerging market (EM) local bonds offer attractive opportunities. The yields on offer from a number of EM local bond markets are among the highest currently available in fixed income, while EM currencies are attractively valued and look set to benefit from the U.S. dollar cycle potentially turning. Below, we identify five factors that we believe support the case for this sometimes underappreciated asset class.
Why EM Local Bonds Could Shine
Compelling Valuations in EM Currencies
EM currencies still look attractive, in our view. The multiyear U.S. dollar bull run has driven developing currency values down: the value of a basket of EM currencies fell by about 43% between July 2010 and January 2021. The US dollar index appreciated by about 11% against a basket of currencies over the same period. This suggests that there is ample room for EM currencies to appreciate against the dollar over the medium term.
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