Widely different economic conditions invariably prevail in individual countries. When investing in emerging market bonds, we believe that correctly assessing the implications of these various economic cycles is a key factor in determining how to build (or avoid) exposures to a country’s assets.
There are four distinct economic cycles typically found when analysing developing nations. Some countries may be in ‘crisis’, while others may be ‘stabilising’ after a problematic period.
Many emerging market economies progress from stabilisation to an ‘improving’ stage, in which an economy displays healthy recovery signals such as an appreciating currency and declining inflation expectations. The fourth stage of the economic cycle is typically ‘boom’, which brings some key risks as well as opportunities for EM bond investors.
Given these considerations, we believe a highly flexible mandate is crucial to be able to exploit fully the range of opportunities to add value in the EM sovereign and corporate debt markets, and currency markets.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.