US interest rate rises, international trade tensions and local currency volatility have remained key concerns in emerging markets (EM).
In addition, country-specific economic challenges escalated in Turkey and Argentina, while political uncertainty returned in Brazil.
Against such a backdrop, markets were right to re-price EM risk. In turn, EM bonds have declined year-to-date, giving back some of the solid performance they recorded in 2017.
But after the recent heightened volatility, the asset class rallied in September. During the month, indices for local and hard currency sovereign debt, as well as hard currency corporate bonds, delivered positive returns - albeit with some notable dispersion within them.
Can value still be found in the market based on longer-term fundamentals? To support the investment case, it is worth noting the outlook for positive and reasonable global economic growth has held in place despite some recent cuts to forecasts from the IMF and OECD.
Risks such as trade protectionism have risen and are unhelpful, but China has signalled it may replace US imports with goods from other suppliers.
Among industry sectors, high oil prices should help oil producers, while EM corporate fundamentals generally continue to be resilient or improving. Relevantly, default rates among corporate credit issuers remain low.
As always, it is important for investors to evaluate if periods of increased volatility offer potential long-term buying opportunities. Our recent investment activity has included adding modest positions in China's corporate bond market.
While maintaining a large underweight allocation to the country for some time, valuations for some corporates started to look appealing after spreads widened significantly.
We remain underweight in China, but have bought US dollar debt from real estate issuers on a selective basis, as well as newly-issued bonds from Fufeng Group, a big Chinese supplier of food flavouring.
As for local or hard currency debt, we favoured increasing exposure to locally-denominated debt after 2015 as the US dollar rally was losing momentum.
US dollar-denominated debt appears more attractively priced now than earlier this year as spreads have widened and there are pockets of value in this space.
Claudia Calich is manager of the M&G Emerging Market Bond fund
• Stockpicking opportunities in hugely diverse asset class
• Long-term fundamentals and stable commodity prices
• US monetary tightening/trade wars
• Turkey, Argentina challenges; Brazil political risk