First caught in the crosshairs of the COVID-19 crisis, then roiled by the Russia/Ukraine conflict and the onset of global monetary tightening, emerging markets (EMs) have experienced their share of challenges and volatility over the past few years. Despite the recent turmoil (or in some cases, because of it), we think now is an interesting and opportune time to consider investing in emerging local debt (ELD) markets. As we survey today’s ELD landscape, we see potentially positive trends across fundamentals, valuations, and technicals that we believe are likely to be supportive of these markets going forward.
ELD markets have two primary sources of investment returns: interest rates and currencies. Let’s look at both and how they factor into our current outlook for these markets.