Opportunity in EM debt despite volatility

Emerging markets debt (EMD) inflows have decreased as investors have reacted to concerns over the trade wars, global growth and a shifting political landscape in Argentina, according to Eaton Vance.

In the first half of 2019, US$45.1 billion flowed into EM debt funds, compared to only US$18.7 billion in 2018, according to JP Morgan, but those flows turned negative two weeks ago.

The emerging markets debt team at Eaton Vance said despite the volatility, they were still constructive on the asset class and country selection would become important as the rally matured.

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“Amid all the news and noise last week, Ukraine posted a great Q2 gross domestic product (GDP) number,” the Eaton Vance EMD team said.

“Ukraine has a reformer president, Volodymyr Zelensky, who rode to victory on a strong wave of discontent earlier in the year, and in the past few weeks his party secured a parliamentary majority.

“Another nice data point that didn't make the news last week was the strength of Egypt's non-oil exports. Egypt's reform progress over the past two years has been impressive.”

They said for most of the year EMD had benefited from the tailwind of falling rates, but they believed country selection would become more important as the broad-based EMD rally faded.




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