Emerging Market Bonds No Longer as Compelling

Emerging market debt is not nearly as attractive as what it was back in early 2016, however local currency debt warrants an investors attention

Matthias Palowski 27 September, 2017 | 3:04PM

Emerging markets debt has surged in price. Local-currency debt, represented by the J.P. Morgan Government Bond Index-Emerging Markets, jumped more than 14% in the first eight months of 2017, while hard-currency debt rose 9%. Those increases far outpaced the Barclays Bloomberg US Aggregate Bond Index, which returned just 3.6% in the period.

Asset flows paint a similar picture. Investors who fled emerging market debt late last year returned en masse this year, as asset flows to both local and external emerging market debt have approached record highs throughout 2017. The predictable result has been lower yields, in both absolute and relative terms, and the outsized returns already mentioned. But where has this rally left the asset class in terms of attractiveness from a valuation perspective?

The outlook for emerging market debt by valuation

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About Author

Matthias Palowski  is a Senior Investment Analyst for Morningstar Investment Management

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