EM local debt may be more susceptible to global geopolitical factors than other fixed income sectors but should not be written off on that basis alone. Many EM central banks are well ahead of the Fed in hiking rates to help blunt inflation, while high commodity prices are a boon to some EM commodity exporters.
Multi-asset investments may be another piece of the puzzle
Income-oriented investors might also consider diversified, multi-asset investment strategies that leverage both traditional and complementary sources of income (such as real assets, options, and other fixed income assets). For example, covered-call options on single stocks may provide additional income potential, as might selling put options on high-quality stocks.
Prudent security selection is critical when investing in options. Trading options over corporate earnings announcements should be avoided in particular, as markets are likely to experience more extreme volatility around companies’ quarterly results.
Expect markets to remain volatile this year and into next
Lofty inflation, economic uncertainty, and central banks’ responses will likely continue to impact global markets through 2022 and perhaps into 2023. Geopolitical events this year, particularly the conflict in Ukraine and sanctions on Russia, have dealt a heavy blow to supply chains worldwide, causing shortages in agricultural, metals, and energy commodities and further stoking inflation. Higher energy prices and potential energy rationing in some regions could also weigh on various economies’ paths to recovery.
Harness the power of active management
With so many dynamic moving parts and so many different types of assets to choose from, investors shouldn’t go it alone. Partnering with a capable, experienced active investment manager may enable investors to capitalize on compelling income opportunities, while also effectively managing portfolio risk. That’s the power of active management.