Hong Kong, China – The investment landscape in the third quarter of 2024 saw emerging markets debt rallying, driven primarily by movements in US interest rates. This surge was fueled by a cooling of US inflation and a sharper-than-expected slowdown in the labor market that led to a decline in the 10-year US Treasury yield by approximately 80bps. As a response to these economic shifts, the US dollar weakened, the yield curve steepened, credit spreads tightened, and risk assets, particularly emerging markets debt, experienced a rally.
In a global context, central banks around the developed world, including the US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, and the Swiss National Bank, implemented rate cuts throughout the third quarter. On the other hand, the Bank of Japan stood out by raising interest rates, diverging from the path taken by other central banks.
The third quarter also witnessed several emerging markets central banks adjusting their monetary policies in alignment with developed market policies. Countries like Hungary, Czech Republic, Uzbekistan, Peru, Mexico, South Africa, and Chile cut rates, while Nigeria raised rates and Turkey maintained its interest rate at a high 50.00%.
Amid these global economic shifts, the investment in emerging markets debt remained susceptible to the evolving macroeconomic climate. Each country’s unique events and policies played a significant role in shaping the returns in the market. From Venezuela’s political turmoil to Argentina’s fiscal reforms, each nation’s decisions had repercussions on their sovereign bonds and overall debt market performance.
Looking ahead, the portfolio remained cautiously positioned amidst geopolitical uncertainties, seizing opportunities across different risk factors as they emerged. The team made adjustments to the portfolio’s currency exposure, leaning towards Asian currencies with promising growth prospects. Overall, the portfolio maintained an underweight duration positioning in developed markets relative to the J.P. Morgan EMB Hard Currency/Local Currency 50/50 Index.
As the global economy faces ongoing challenges and uncertainties, the EMsights Capital Group continues to navigate the market by seeking out idiosyncratic events that drive divergence between regions and countries. With heightened geopolitical tensions and fiscal consolidation efforts, the team remains vigilant in monitoring market trends and adjusting their strategies accordingly.