Rethinking the EM Corporate Bond Asset Class: Insights for Insurers

Despite macro headwinds in 2023, emerging market (EM) debt performance was strong. How do you explain it?

EM asset classes did end up having a good year in 2023 in general. I would even suggest that during the year, there was a noticeable shift away from long-held views that EM asset classes are high-beta, driven by developed market growth and monetary policy.

Consider that despite a strong US dollar, tight global liquidity and some commodity weakness in 2023, many core emerging markets demonstrated resilience and the markets took notice, resulting in solid returns. I see this as evidence of traction on reforms, the development of internal demand, and greatly improved central bank credibility. It is also likely a recognition of the diversification of the asset class that has come with its growth.

Looking into 2024, we believe the market’s expectation of a global easing in liquidity could be an incremental tailwind to EM debt’s 2023 resilience—over and above the persistent spread premium we see in EM corporate debt.