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Public Fixed Income

EM Debt: Time to Load Up?

October 2024 – 5 min read

A number of factors have converged to create a potentially compelling opportunity in EM debt. And with prices at attractive levels relative to history, now may be a good time to consider an allocation to the asset class.

A Supportive Backdrop

Global financial markets have not had a traditional monetary easing cycle since before 2008. The last two rate-cutting cycles from the U.S. Federal Reserve (Fed) and other major central banks have been associated with cataclysmic events—the Great Financial Crisis (GFC) in 2008 and the Covid pandemic in 2020. During these periods, interest rate cuts were combined with large expansions of the Fed’s balance sheet (Figure 1). Today, the picture is somewhat different. Unless a new and unexpected crisis develops, the monetary easing cycle that recently began will likely focus solely on interest rate cutting, with the Fed continuing to shrink its balance sheet.

Figure 1: Previous Easing Cycles Combined Rate Cuts With Balance Sheet Expansion

em-debt-time-chart1-web.jpgSource: Haver Analytics; Bloomberg. As of August 30, 2024.

At the same time, after a prolonged period, global commercial banks have started to lend once again. This means, after well over a decade of bank retrenchment, the global financial system appears to be operating more in line with how it has functioned historically.

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Dr. Ricardo Adrogué

Head of Global Sovereign Debt & Currencies

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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