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Emerging debt in 2017 and beyond - More left in the turnaround story

 

The essential

EM debt assets have had a stellar 2016. The rally is not over. Remember the Greek Financial crisis of 2010-2012? The financial and economic woes of Europe added to the attraction of EM debt, leading to unprecedented inflows and returns during those three years.

Brexit may do the same for Emerging Markets… Three factors will drive continued positive returns going forward: strong technical factors encouraging inflows; much better than consensus fundamentals; and still attractive valuations. Three major concerns dominate: China, the post-election of Trump situation and the gradual end of accommodative monetary policies. The election of D. Trump may be a favourable factor... but only if growth expectations grow and tariff increase do not materialise. The risks related to China will probably be limited, despite some occasional jolts. Finally, it is unlikely that the impact of a possible tapering will be as negative for the emerging markets as in 2013. EM countries have much lower external vulnerability, and investors are not as overweight as they were when taper tantrum hit. Hard currency debt remains our preferred asset class within EM fixed income.

CROSS ASSET (Download)

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November 2016

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November 2016

The Article

L'Article

AMELI-RENANI Abbas , Global Emerging Markets Strategist at London
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Emerging debt in 2017 and beyond - More left in the turnaround story
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