Partner insight: Rising energy prices bring emerging market opportunity

Despite the current economic uncertainty, there are a number of opportunities in emerging market debt, says Polina Kurdyavko

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Polina Kurdyavko, head of emerging markets at BlueBay Asset Management
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Polina Kurdyavko, head of emerging markets at BlueBay Asset Management

When uncertainty is high, risk assets tend to be on the back foot. However, if we step back, we feel that there are a number of opportunities in emerging market debt.  

On the local currency side, we feel the central banks have been pre-emptive, doing a number of hikes from the middle of last year. The vast majority of emerging market countries are commodity exporters, and with the boost in commodity prices that we've witnessed recently, this has substantially improved current account surpluses of a number of countries which provide additional support for EM currencies.  

On the hard currency side, the expected returns are related to the expected default rate. Today, hard currency debt trades at double-digit yield, implying a similar default rate. However, in practice, we feel the default rate is likely to remain in mid-to-low single digits for emerging market sovereign debt, and therefore we feel that investors are well compensated for the opportunity in this asset class.

For more on the opportunities in emerging market debt, watch our exclusive Three Minutes With interview with Polina Kurdyavko

This post was funded by BlueBay Asset Management

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