GMO White Paper: Why High-Quality Local Currency Debt Looks Attractive in EM

In a new white paper, Victoria Courmes, Riti Samanta and Mina Tomovska of GMO discuss how higher yields and similar defensiveness are a compelling combination in favor of high-quality local currency EM debt.

GMO’s new white paper argues that a quality local currency debt strategy presents an attractive option to investors seeking exposure in emerging markets, either as a complement to or in lieu of DM bond exposure. The concept of quality in EM debt can be used to balance the risks and rewards of investing in emerging markets, Courmes, Samanta and Tomovska argue, allowing investors to reap the benefits of excess EM yields without sacrificing DM-like defensiveness.

“As an alternative to non-U.S. developed market exposure, EM quality local currency debt offers a viable solution to investors that seek EM exposure but may not be ready to embrace the full spectrum of volatility and idiosyncratic risk inherent to the asset class,” the authors write.