Divergent emerging market outcomes in an uneven recovery
Portfolio managers and emerging market debt specialists Jennifer James and Ales Koutny analyse emerging market (EM) country fundamentals and consider how they influence opportunities for investors.
- EMs are ahead in their tightening cycles relative to developed markets (DMs), but further divergence between countries will emerge in their differing paths to normalisation.
- Assessing economic fundamentals can indicate how the inflation and growth outlook could look for EM countries this year and their resilience against volatility from a rising rate environment.
- As inflation wanes during the second half of 2022, we believe real rates could turn more positive in some EMs while lessons learnt from how EM asset classes perform during a rate hiking cycle could be instructive for investors and asset allocation decisions.
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- An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall. High yielding (non-investment grade) bonds are more speculative and more sensitive to adverse changes in market conditions.
- When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
- Emerging markets expose the Fund to higher volatility and greater risk of loss than developed markets; they are susceptible to adverse political and economic events, and may be less well regulated with less robust custody and settlement procedures.
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- Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
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- Some or all of the ongoing charges may be taken from capital, which may erode capital or reduce potential for capital growth.
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