Investment Rationale for Emerging Market Bonds in 2017
Emerging markets have done well this year and should continue to attract investor interest around the globe. Latin America is leading year-to-date.
The Barbell strategy involves putting half your portfolio in defensive, low-beta sectors or assets and the other half in aggressive, high-beta sectors or assets.
Emerging market debt can be a great source of income potential in a diversified portfolio, provided you can manage it during a period of extreme volatility.
The VanEck Vectors EM Local Currency Bond ETF (EMLC) could be a good entry point after it took a hit following rising interest rates and volatility in the US dollar.
You have two options when it comes to investing in emerging market bonds—hard currency bonds and local bonds.
Investors are stepping back into emerging market bonds after removing billions of dollars from emerging markets in 2016.
Strong investor interest in emerging market debt has continued despite adverse political and economic issues in some countries.
According to a recent BofA Merrill Lynch Global Investment strategy report, emerging markets are expected to grow at a modest pace of 4.7% in 2017.
Negative bond yields in Japan and low Fed funds rates in the United States and the Eurozone were one reason emerging market bonds performed well in 2016.
Since the US presidential election, emerging markets have bounced back as though the election never happened.
The demand for emerging market bonds improved when fear of rate hikes abated in 2016. Fundamentals are still favorable for emerging debt markets.
A strengthening dollar impacts the emerging bond market’s performance. Uncertainty started revolving around the performance of emerging market debt.
Donald Trump’s surprise presidential win and the rising dollar called for a sell-off in most emerging market currencies like Mexico and Turkey.
In the emerging market bond space (PCY) (EMLC), high-yield bonds and local currency bonds outperformed hard currency sovereign bonds.
Trump’s unexpected presidential victory caused short-term uncertainty about markets and policies. His win reinforced a reflationary theme in global markets.
So far in this series, we’ve discussed how demographic changes are transforming emerging markets.
As smartphone penetration in emerging markets rapidly intensifies, business is increasingly taking place through online platforms.
As the middle class expands and discretionary incomes rise, emerging markets are feeling more strongly the impact of the web and mobile technologies.
In recent years, emerging markets have experienced rapid economic growth compared to developed markets.
In the previous articles of this series, we discussed population and economic growth as the two major drivers leading to a rise in emerging markets (EMQQ).