Why Emerging Market Debt?

After a challenging 2022, it is time for investors to look forward to opportunities. Emerging Markets (EM) debt stands out as one place where investors can potentially take advantage of an underutilized asset class that offers attractive yields and diversification.

  • With a few exceptions, EM sovereigns and corporates have been resilient in the face of rising rates and tighter financial conditions. A more mature policy framework, particularly on monetary policy, has supported this resilience. Since EM central banks have been “ahead of the curve” in terms of hiking, we believe this has set up local debt for a period of strong performance moving forward as tightening cycles peak and inflation prints roll over.
  • Select countries and corporates have been under macro and market pressure amid the global volatility, including the commodity shocks of 2022. Idiosyncratic situations, like China property, have also been in focus. This is why, as active managers, issuer differentiation is a key part of the investment approach. The Russia-Ukraine conflict provided a valuable case study in this respect.
  • One of the benefits of Emerging Markets Debt (EMD) in the current environment, is that it offers compelling valuations and an attractive long-run income opportunity. Investment consultant studies highlight that there is no clear “winning strategy” for investing in EMD. Payden & Rygel offers consistency and longevity in its EMD approach, while partnering with clients to create customized solutions that maximize their unique investment objectives.

Why Emerging Markets Debt (vs. EM Equity)

It is important to start out with what EMs are not—EMs are not a backwater in terms of economic activity. In 2021, EM GDP accounted for 58% of global GDP (in PPP terms), with EM ex-China equivalent to almost 40% of global GDP. To take this one step further, at the end of 2021, of the twenty largest economies (in 2021 dollars), half are from the Emerging World. This includes China, which is the globe’s second largest economy behind the United States, but it also includes the likes of India, Indonesia, Mexico, and Brazil.