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With compelling yields and strong fundamentals, Emerging Market Debt (EMD) benefit from an attractive risk reward. This remains an underinvested asset class becoming more than a simple alternative within the Global Fixed Income universe.
With over 5% annual yield for carry strategy as of June 2015, EMD is a real source of yield enhancement within a fixed income portfolio
Source: Bloomberg, IMF, Amundi AM as of June 2015
EMD is more than a simple substitute within the Global Fixed Income universe
Sergei Strigo, Head of Emerging Debt and Currency Management, Amundi London
Source: Amundi as of June 2015
USD 14 tn
countries with diverse economic cycles1
EMD remains an underinvested asset class: EM has 12% of global debt but only less than 8% share of assets are in EMD funds. A move toward 12% share implies inflows USD 1 tn into EMD.
Low supply: net EM sovereign issuance in HC is expected to be negative in 2015
Global Quantitative Easing programs – Europe and Japan – will support the hunt for yield, increasing inflows in EM bonds
Source: EPFR, PWC, Amundi as of June 2015
The Fed will likely increase its interest rates gradually, a risk which is largely priced in by markets.
Abbas Ameli-Renani, Global Emerging Markets Strategist at Amundi London
Possible increase of Fed funds rate is a risk for EMD carry trades. But we believe that the rise of interest rates will be gradual and this risk is largely priced in by markets.
Conversely, Japanese and European Central Banks are maintaining very low interest rates and providing liquidity through unconventional monetary policies – QE programs. These measures ensure that G3 fixed income yields will remain low for longer driving investors to look to alternative solutions for return.
The hunt for yield should continue within the Global Fixed Income universe and fuel flows into EMD.
1. Data as at June 2015
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