The Covid-19 crisis and its impact on the economy (both oil and commodities dynamics and trade) have been the main drivers of the slowdown in emerging markets. Despite the significant disruption, we see signs of improvement in the virus cycle in most EM economies. China is also engineering a fast rebound thanks to massive fiscal stimulus and, most recently, improvements on the internal demand front.
Overall, this paints a picture of cyclical improvement for many EM economies, starting with some Asian and CEMEA countries and most likely moving towards LatAm in the coming months.
Against this backdrop, there are still opportunities investors can grasp in EM bonds as the search for yield remains strong. We see value in the HY space, where spread compression has not completely materialized. The improvements in economic momentum also support selective equity investing and FX exposure.
To grasp these opportunities, however, investors should be highly selective in terms of countries, sectors and names in order to avoid areas of idiosyncratic risk.
To find out more, download the full paper
